Dollar extends drop, remains vulnerable after Fed steer

LONDON: The US dollar extended its decline on Monday, having fallen by the most since July last week after the Federal Reserve dialled down its hawkish rhetoric and US data showed signs of moderation.

The dollar index eased 0.2 per cent to 104.85, its lowest level in 6-1/2 weeks, after falling 1.4 per cent last week.

The euro gained 0.2 per cent to a 7-1/2 week high of $1.0756.

World stocks too had their strongest week in a year last week as expectations the Fed was done raising rates gathered steam, Reuters reported.

Other indicators such as weakness in US jobs data, softer manufacturing numbers and a decline in longer dated Treasury yields also hurt the dollar, while stoking rallies in sterling and the Aussie dollar and causing the yen to bounce from the weaker side of 150 per dollar.

“We always say bad news is good news,” said Tina Teng, a market analyst at CMC Markets in Auckland. “So it’s good then there is expectation for the Fed and other central banks to end the rate hike cycle sooner.”

She expected the dollar to remain on a weaker trend through November. Dane Cekov, senior FX strategist at Nordea, called last week’s moves an “overreaction”, saying the jobs data was a “mixed bag”.

“You could still see a somewhat weaker dollar in the short-term but if the (euro-dollar) rally continues it needs to get some fuel from somewhere.”

JPMorgan analysts say a sustained dollar selloff would need signs of improvement in the euro zone, China and other regions which it says are “still tenuous”.