The dollar fell to three-week lows versus the yen and the Swiss franc on Thursday after minutes of the Federal Reserve's March meeting disappointed investors positioned for a gradual tightening in monetary policy. The Swedish crown was the big mover in Europe. It fell to its lowest in 3-1/2 months against the euro amid higher-than-usual volumes after inflation data fell short of expectations and cemented expectations the Riksbank will cut interest rates in coming months.
Minutes of the Fed's March 19 meeting released on Wednesday were in broad focus. They showed officials were worried the US central bank's forecasts on interest rates might appear to investors to be mapping out a more aggressive cycle of rate hikes than was actually expected. Investors also interpreted the discussion in the minutes over the amount of slack in the labour market as dovish, all of which left the dollar struggling against most major currencies. Its losses were biggest against the yen which, given its safe-haven status, was also helped by weaker-than-expected Chinese trade data, traders said.
The dollar was down 0.4 percent at 101.55 yen, having fallen to 101.42 yen, its lowest since March 19. The dollar slipped against the Swiss franc to 0.8772 francs, its lowest in three weeks, as US two-year Treasury yields fell sharply. "The Fed minutes are pushing back rate hike expectations from the middle of next year to the latter part of 2015," said Jane Foley, senior currency strategist at Rabobank. The dollar index hit a three-week low of 79.421, well below a seven-week high of 80.599 set only last Friday. It last stood at 79.443, down 1.2 percent for the week.
"The index sits just above critical support at 79.26 (its March 13 low)," said Adam Cole, head of currency strategy at RBC Capital. "US short rate expectations have now unwound most of the move that followed the last FOMC meeting, with the implied timing of the first hike pushed back to October 2015 from August just two days ago." Indeed, the index has relinquished most of the gains made since the Fed chair Janet Yellen suggested on March 19 that rates might rise as soon as early next year. Those comments were made after the Fed said it would wait a "considerable time" after ending its asset-buying program before lifting rates.
Given the dollar's struggles, the euro inched up to $1.3870 . But traders are wary of pushing it higher, given expectations that the European Central Bank could step up its rhetoric against a strengthening currency and its impact on disinflation. The Australian dollar broke above tough chart resistance at 94 US cents after data showed Australian employment grew more than expected in March. The data reinforced the view that Australia's central bank would keep interest rates on hold for a while and hold off from cutting them further.
The Aussie rose to as high as $0.9461, its highest level since last November, and was last up 0.5 percent. The New Zealand dollar touched a high of $0.8746, its strongest level in more than 2-1/2 years. It slipped on some profit taking and was last at $0.8710, flat on the day.