US dollar snaps six days of gains as traders weigh Fed's rate path

[NEW YORK] A gauge of the US dollar snapped a six-day rally as traders weighed the potential for the Federal Reserve to raise interest rates after a report showed policy makers' preferred measure of inflation slowed last month.

The US currency slid against most major peers as personal spending barely increased in February and the prior month's advance was revised down as Americans saved more of their incomes. Global currency volatility advanced to the highest in a month, according to a JPMorgan Chase & Co index.

Traders will watch a speech by Fed Chair Janet Yellen Tuesday for clues about the central bank's rate path, followed by monthly labor data later in the week. The US dollar's resilience may depend on how the economy weathers turbulence from overseas.

The currency has slumped more than 4 per cent since the end of January on speculation US policy makers will refrain from tightening rates amid a dimming outlook for global growth.

"The dollar is really not your best bet right now," Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in an interview on Bloomberg Television.

"Every time you have the dollar rising, concerns about China devaluation, concerns about emerging-market growth, concerns about commodity markets - those start to resurface and that's what we think is going to stop the Fed from hiking."

The US dollar fell 0.4 per cent to US$1.1208 per euro as of 12:07 pm in New York. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, slid 0.4 per cent. A JPMorgan gauge of foreign-exchange price swings climbed to 11.47 per cent, the highest since Feb 29 on a closing basis.

Easter Holiday Financial markets including those of the UK, Germany, Australia, and New Zealand were shut Monday for the Easter holiday.

Policy makers are closely scrutinizing incoming data as they look for signs the US economy can withstand rate increases. While inflation has lagged behind officials' 2 per cent goal, unemployment has fallen to an eight-year low and employers probably added 208,000 workers in March, according to a Bloomberg survey before a Labor Department release on April 1.

Fed Bank of San Francisco president John Williams, who doesn't vote on monetary policy this year, said Monday that the global economy, particularly China and Brazil, has a "huge impact" on the central bank's inflation and employment goals.

Traders put the probability of the Fed raising rates at its June meeting at 36 per cent, down from 42 per cent a week ago, according to data compiled by Bloomberg. The calculation assumes the effective fed funds rate will average 0.625 per cent after the central bank's next increase.

"The dollar is going to face some headwinds," Ian Gordon, a foreign-exchange strategist at Bank of America Corp in New York, said on Bloomberg Television.

BLOOMBERG