Dollar edges down but well above Fed-inspired lows

The dollar eased in Asian trade on Friday but remained well above this week’s lows plumbed after the Federal Reserve’s dovish stance on interest rates sent the greenback tumbling.

The dollar’s plunge on Wednesday after the Fed cut its inflation outlook and its growth forecast did not alter the long-term view that divergent global monetary policy expectations will bolster the US currency in the months ahead.

“The FOMC outcome did not rule out a rate cut, so pressure will remain on the yen as before. Today, there is a shortage of fresh trading incentives, so the yen has come back a bit, as we near the end of the month, quarter and Japanese fiscal year,’’ said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

Against the yen, the dollar edged down about 0.1 per cent to 120.72, well above its Wednesday post-Fed low of 119.29 yen.

BoJ policy meet

The Bank of Japan stood pat on policy earlier this week, as it has every month since expanding its massive stimulus programme in October last year.

BoJ Governor Haruhiko Kuroda has stuck to his view that the central bank will meet its 2 per cent inflation target around the year beginning in April, even if it meant expanding its stimulus further.

But government officials attending the BoJ’s February meeting signalled to the central bank that it should not rush in accelerating inflation, minutes of that meeting showed on Friday.

Fed rate hike

Improving US labour conditions suggest the Fed bank might position itself for a rate hike later this year, if other areas of the economy show strength.

On the US data front on Thursday, the number of Americans filing new claims for unemployment benefits rose only marginally last week, indicating the labour market remained on solid footing.

In stark contrast to the Fed, the European Central Bank had launched a quantitative easing programme this month that sent several key European yields to record lows and some into negative territory.

Euro vs dollar

The euro inched up about 0.2 per cent on the day to $1.0678 on Friday, but remained far from its high of $1.1062 hit on Wednesday after the Fed’s announcement when it marked its biggest one-day rise against the dollar in six years.

This week's volatile swings saw the common currency plunge to a 12-year low of $1.0457 on Monday.

Against a basket of currencies, the dollar fell about 0.3 per cent on the day to 98.943, up from Wednesday’s session low of 96.628 but well below a 12-year peak of 100.390 touched a week ago.

While market players’ consensus expectation for the US central bank’s interest rate hike has shifted, the overall trend has not. A majority of Wall Street’s top banks now see the Fed holding off until at least September before raising rates, with odds fading for a June hike, a Reuters poll showed.

“Our core views have not changed across commodity and FX markets: we remain bearish on commodities and bullish on the USD in the G10 and EM areas,’’ strategists at RBC Capital Markets said in a note to clients.

“In fixed income, we have shifted from bearish to a neutral stance for US 10-year yields, preferring to step aside for better perspective after multiple whipsaws have chopped us up over the last three weeks,’’ they added.

Undermining the greenback, US Treasury yields wallowed not far from multi-week lows struck after the Fed meeting. The yield on benchmark 10-year notes slipped to 1.954 per cent in Asian trading from its US close of 1.976 per cent on Thursday.

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