Dollar suffers worst week since 2013 as Fed damps rates outlook

[LONDON] A gauge of the dollar headed for the steepest weekly slide since July 2013 after Federal Reserve Chair Janet Yellen suggested the central bank was in no hurry to raise interest rates.

"This is not time to turn bullish with fanciful forecasts - most of the meat of the dollar bull-run is done," David Bloom, global head of currency strategy at HSBC Holdings Plc in London, said in an interview on Bloomberg Television's "On the Move" with Jonathan Ferro.

"The Fed rate hike is in the price. The big motivation behind the dollar bull market has dried up."

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, declined 0.3 per cent to 1,207.96 at 7:16 a.m. in New York. The gauge has fallen 1.2 per cent this week, heading for the first in weekly drop in five.

HSBC cut its 2016 forecast for the dollar to US$1.10 per euro on Thursday, from US$1.05 previously.

The dollar dropped after Yellen said at her March 18 press conference a rate increase in June can't be ruled out, though removing the central bank's commitment to patience "doesn't mean we are going to be impatient."

Fed policy makers cut their estimate for the federal funds rate at year-end to 0.625 per cent, down from a forecast of 1.125 per cent in December.

Losing Streak While the euro rallied after its biggest daily drop in two months on Thursday, it's heading for its ninth straight month of losses, the longest losing streak on record, as the Fed moves closer to raising rates while the European Central Bank adds to currency-debasing stimulus.

The euro strengthened 0.3 per cent to US$1.0687, after falling 1.9 per cent Thursday.

Even after a 1.8 per cent advance this week, the 19-nation shared currency has declined 4.5 per cent against the greenback this month.

The New Zealand and Australian dollars were among the biggest gainers versus the greenback. Reserve Bank of Australia Governor Glenn Stevens said Friday the current level of interest rates is "quite low" and he doesn't think it's holding back the economy.

"He covered no new ground and passed up an opportunity to jawbone the currency, noting that the lower level would help but omitting the usual even-lower-would-be-even-more-helpful tone," Michael Turner, a debt and currency strategist at Royal Bank of Canada in Sydney, wrote in a note.

The Aussie strengthened 0.4 per cent to 76.81 US cents, poised for its first weekly gain since February. New Zealand's dollar appreciated 0.5 per cent to 74.55 US cents.

Whatever the pace of tightening in the US, the Fed's monetary policy stance still contrasts with the ECB and the Bank of Japan, among many global central banks, that maintain an accommodative stance.

The dollar has gained 20 per cent in the past year, the best performance among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro declined 9.2 per cent, while the yen was little changed.

"The dollar's rebound yesterday means there is a possibility that retreating speculation for an early US rate increase may end up being temporary," said Junichi Ishikawa, an analyst at IG Markets Securities Ltd in Tokyo.

"Depending on data related to employment and inflation, a June rate hike remains an option and such doubt led to the dollar's rebound."

At a meeting in Brussels on Thursday, European Union leaders urged Greek Prime Minister Alexis Tsipras to submit a more concrete reform plan so that bailout talks can speed up.

Mr Tsipras met with German Chancellor Angela Merkel, France's President Francois Hollande and European Central Bank President Mario Draghi as he sought funds to keep Greece afloat. Greek 10- year bond yields fell on Friday after jumping to their highest level in almost two years Thursday after the ECB granted Greek officials only part of their request for more emergency funding.

Since Greek sovereign bonds do "not offer the liquidity or adequate hedging tools, the risk premium should show up in the euro by default," strategists at Morgan Stanley, led by Hans Redeker, London-based head of global currency strategy, wrote in an e-mailed note dated March 20.

BLOOMBERG