Dollar Hits Fresh Two-Week Low In Wake Of Dovish Fed Minutes

The dollar hit a two-week low versus a basket of currencies on Thursday, after minutes from the U.S. Federal Reserve’s last meeting prompted markets to push out expectations for the likely timing of an interest rate rise.

The dollar index fell 0.1 percent to 85.174 .DXY. It slipped to 85.143 at one point, its lowest level since late September, pulling away from a four-year peak of 86.746 hit on Friday.

Against the yen, the dollar slipped 0.2 percent to 107.91 yen, nearing Wednesday’s three-week low of 107.75 yen and well away from a six-year high of 110.09 set last week.

“Last week it was a pretty clear-cut buy the dollar scenario, but this week… we’re seeing a lot of two-way action,” said Stephen Innes, senior trader for OANDA in Singapore.

Earlier on Thursday, there was some dollar buying interest from retail traders at levels above 108 yen, Innes said.

He added, however, that the dollar’s dip below support at 108 yen this week could open the way for a further pull-back in the dollar, at least in the short-term.

“We’ve already broken 108 several times in the past couple of days. I don’t think it’s out of the question that we could see a further correction over the near-term before the market starts going back the other way,” Innes said.

The euro rose 0.1 percent to $1.2746, now more than two cents above a two-year trough near $1.2500 set last week.

A recent string of upbeat U.S. data, the latest being Friday’s nonfarm payrolls, had led dollar bulls to believe the Fed might hike interest rates sooner rather than later.

But minutes of the Fed’s September meeting released on Wednesday suggested the central bank was in no such hurry. In fact, policymakers were worried the recent rally in the greenback might slow the gradual increase in inflation towards the Fed’s 2 percent goal.

There were also concerns that a persistent shortfall of economic growth and inflation in the euro zone, slower growth in China or Japan or geopolitical risks in the Middle East could “lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector.”

“The risk of slower growth in Europe and exchange-rate pass through of a stronger dollar have only risen since the Fed met in September, likely causing markets to conclude the Fed may remain patient before dropping its “considerable” time formulation and moving to rate hikes,” analysts at Barclays wrote in a note to clients.

At its September policy meeting, the Fed had renewed its pledge to keep interest rates near zero for a “considerable time” after its asset purchase program ends.

U.S. Treasury yields and the implied rates on Fed fund futures <0#FF:> fell sharply after the Fed minutes with the market not seeing any appreciable rise in the Fed’s target rate until around September 2015, from June 2015 previously.

With the dollar on the backfoot, commodity currencies gained a lift.

The Australian dollar rose 0.4 percent to $0.8875, pulling away from a four-year low of $0.8642 set last week.

The Aussie dollar slipped briefly after Australia’s employment data showed a surprising fall in jobs, but later erased its losses.

Australian employment reportedly fell 29,700 in September while the jobless rate ticked up to 6.1 percent, though there were major doubts over the reliability of the data given problems with the seasonal adjustment process.

Source : reuters