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US dollar drops after Yellen's dovish remarks

Wednesday, March 30, 2016 - 06:29

[NEW YORK] The dollar dropped Tuesday as traders judged unlikely another US interest rate increase anytime soon after remarks by Federal Reserve Chair Janet Ms Yellen.

Ms Yellen, speaking to the Economic Club of New York, signaled clearly that a rate hike was not likely to come before June and that, when the US central bank does tighten policy, it will be slow and gradual.

Ms Yellen stuck to the Federal Open Market Committee's dovish tone in January and March statements after the FOMC raised the benchmark federal funds rate in December for the first time in more than nine years.

Her tone was in contrast to some recent hawkish remarks by some Fed regional presidents that spurred speculation another hike could come at the April 26-27 meeting.

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Ms Yellen cited growing risks to the US economy from the global slowdown, China uncertainty and low oil prices, and mixed US economic data among others for the central bank's projection of a somewhat lower path for the fed funds rate than seen in December.

"Given the risks to the outlook, I consider it appropriate for the committee to proceed cautiously in adjusting policy," she said.

"On balance, (Ms Yellen's) comments do not sound consistent with a looming rate hike in April and leave considerable doubt about whether rates will rise in June," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, referring to the Fed's June 14-15 meeting.

The dollar fell 0.9 per cent against the euro, at US$1.1293 per euro. The greenback traded 0.6 per cent lower at 112.78 yen, and also weakened against the pound and Swiss franc.

Kathy Lien, head of forex strategy at BK Asset Management, said the dollar's earlier losses accelerated after Ms Yellen "flapped her dovish wings." "After last week's comments from Fed officials who suggested that rates could be raised in April, dollar bulls hoped that Ms Yellen would confirm their less dovish posture," Ms Lien said.

"However it is now clear that the Fed Chair does not share her colleagues' optimistic views. Her comments imply that if it were up to her alone, rates would remain unchanged in April and June."

AFP

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