Yellen Sends Dollar to Worst Month Since 2010 as Yen Advances


Yellen Sends Dollar to Worst Month Since 2010 as Yen Advances
©2016 Bloomberg News
Lucy Meakin and Chikako Mogi

(Bloomberg) — The dollar headed for its worst month in 5 1/2 years after Federal Reserve Chair Janet Yellen doused speculation the U.S. central bank will pick up the pace of interest-rate increases. The yen strengthened.

A gauge of the greenback approached the lowest since June after Yellen said the Fed will act “cautiously” as it looks to raise rates against the backdrop of a deteriorating global economy. The dollar has fallen against all of its 31 major peers in March with Russia’s ruble and Brazil’s real posting the biggest gains, helping emerging-market currencies to their best month in 18 years.

“They’re sticking with a steady-as-she-goes but very slow process on rates, and that’s undermined the dollar,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “It’s not a great backdrop for these emerging-market currencies but they’ve been doing very well. Everything comes down to U.S. monetary policy.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, fell 0.3 percent as of 6:55 a.m. in New York. The gauge has slumped 3.7 percent this month, the most since September 2010. A measure of 20 developing-nation currencies climbed 5.3 percent in March, the most since February 1998.

The yen appreciated 0.4 percent Wednesday to 112.30 per dollar, while the euro rose 0.3 percent to $1.1321. Japan’s currency was little changed at 127.15 yen to the euro.

Trouble Abroad

In the past three days, Bloomberg’s dollar index has more than wiped out its gains from last week, when policy makers including St. Louis Fed President James Bullard and San Francisco Fed President John Williams said an interest-rate increase as soon as next month was possible.

Since Yellen spoke, traders cut the likelihood of a move by the April Fed gathering to zero, and lowered the probability of an increase by year-end to 64 percent. That’s based on the assumption that the effective fed funds rate will trade in the middle of the new Fed’s target range after the next increase.

Global developments, particularly those in China, pose ongoing risks to the Fed’s outlook, Yellen said in her speech to the Economic Club of New York on Tuesday.

“The strong dollar gave up the ghost yesterday in the aftermath of Yellen’s fairly dovish speech,” Brenda Kelly, head of foreign exchange at trading and advisory firm London Capital Group, wrote in a note. “The use of the word ‘gradual’ and the need to proceed cautiously given global risks was construed by the markets as a signal that further monetary tightening was by no means imminent.”

–With assistance from Mika Otsuka, Kevin Buckland and Lilian Karunungan.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Chikako Mogi in Tokyo at cmogi@bloomberg.net To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Paul Armstrong, Keith Jenkins

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