Dollar falls in New York as expectations fade over rates rise

The dollar fell to two-week lows against the yen and seven-week lows against the euro on Friday as investors lowered expectations for dollar-boosting Federal Reserve rate hikes.
The European Central Bank is already hiking interest rates, while the Bank of Japan may start raising rates, from zero, later this year. This outlook is starting to erode the appeal of higher-yielding dollar-denominated assets to global investors.
The dollar rose fleetingly against the euro even though a report showed a slightly softer-than-expected reading of US consumer sentiment, which reinforced the market's perception that the Fed may end its campaign of raising interest rates sooner than later.
A powerful undercurrent in foreign exchange markets that weighed on the US dollar and battered Australia and New Zealand's currencies was the unwinding of carry trades, in which investors had borrowed in lower-yielding units like the yen and reinvested in higher-yielding dollar assets.
"There has been huge liquidation of New Zealand and Aussie dollars which is in some respects an unwinding of the carry trade," said John McCarthy, director of foreign exchange trading at ING Capital Markets LLC in New York.
Late in New York, the New Zealand dollar was down 1 percent from late on Thursday at US $0.6336. The Australian dollar was down 1.2 percent at US $0.7288. The euro was up 0.1 percent against the dollar at $1.2190.
The dollar was down 0.7 percent against the yen at 115.93 yen. The dollar rallied briefly against the euro in choppy trade as some investors bought back some dollars after the currency's broad slide this week.
The rise came even as the University of Michigan's preliminary consumer sentiment survey reading for March came in at 86.7, below economists' forecasts for 88.0 and unchanged from the final reading for February.
Mixed US economic data, including lower-than-forecast February core consumer prices on Thursday, have dampened expectations that the Fed will hike benchmark short-term rates to 5 percent or more from the current 4.50 percent and weighed on the dollar, analysts said.
"You have had the dollar weakening for many reasons; partly on increasing uncertainty about the Fed, also on concerns about protectionism, and dollar/yen specifically being affected by speculation about China revelling," said Laura Rhyme, vice president and foreign exchange strategist with Credit Suisse in New York.
Investors see the Japanese yen as a freer trading proxy for the Chinese yuan and tend to bid up the yen if there is speculation that China will continue allowing its currency to appreciate.