The dollar fell broadly on Thursday as an influential Federal Reserve official bolstered bets on a preemptive interest rate cut later this month because rates and inflation are low even as the US economy has been expanding.
Fed policymakers cannot afford to keep their "powder dry" and wait for potential economic problems to materialize, New York Federal Reserve President John Williams said at a central banking conference. His comments jolted a somnolent foreign exchange market, where the greenback had held steady against most major currencies.
Williams "is sounding very dovish," said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Investments in Boston. "The dollar has been taking cues from the interest rates market." US rates futures implied traders fully expect the Fed to lower rates in two weeks. They now see a 71% chance of a 50 basis point rate cut, more than double the level implied late on Wednesday, CME Group's FedWatch tool showed.
Williams' rate-cut view was echoed by Fed Vice Chair Richard Clarida, who told Fox Business Network the central bank might have to act early and not wait "until things get so bad." In late US trading, an index that tracks the dollar against a basket of currencies was down 0.52% at 96.713. It broke below its 200-day moving average of 96.806, a technical signal that portends further weakness for the dollar.
The dollar did not budge after US Treasury Secretary Steven Mnuchin told Bloomberg earlier on Thursday there has been "no change to the dollar policy." He later told Reuters that there was no change to the use of a $94.6 billion federal fund intended to stabilize currencies during times of market turmoil. There has been speculation whether the White House would intervene to weaken the dollar after US President Donald Trump lashed out at Europe and China earlier this month for what he called their "big currency manipulation game."
The dollar fell to a three-week low at 107.210 yen. The euro was up 0.44% at $1.1275. The single currency dipped earlier Thursday following a Bloomberg report that ECB staff members are studying a potential change to the bank's inflation goal of "near 2%." Such a move would potentially leave the door open for more ECB stimulus to continue for a longer period, which would exert downward pressure on the single currency.
Among other big gainers against the dollar, the pound was up 0.98% at $1.2552 after hitting a 27-month low of $1.2382 the previous day. The Aussie dollar rose 0.88%, while the New Zealand dollar gained 0.70%.
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