The dollar hit a one-month low on Thursday, staying on the defensive after the head of the Federal Reserve disappointed some who had hoped for a clearer signal on when the central bank will lift interest rates. Instead, Fed Chair Janet Yellen on Wednesday emphasised that the rate decision was still up in the air and rested squarely on further improvement in the labour market, a longstanding concern.
In their projections, Fed officials also saw slightly lower rates at the end of 2016 and 2017 than forecast in March and more policymakers were now in favour of hiking rates only once or not all this year. Overall, the projections for interest rates and remarks by Yellen were interpreted as being slightly dovish, said Jesper Bargmann, head of trading for Nordea Bank in Singapore.
"It's not a big reaction, but it's been a little bit negative for the dollar," Bargmann said. Against a basket of six major currencies, the dollar fell as far as 94.017 - its lowest level since May 18. It last stood at 94.109, down from Wednesday's intraday high of 95.178. The dollar fell 0.2 percent to 123.14 yen, down from Wednesday's high of 124.465. Even the euro edged higher despite the risk of a debt default by Greece, which is still unable to strike an agreement with its creditors on a deal to unlock fresh funds.
The euro rose 0.2 percent to $1.1362. Athens must find a way out of the impasse by the end of June, when it faces a 1.6 billion euro ($1.8 billion) repayment due to the International Monetary Fund (IMF), potentially leaving it bankrupt and on the verge of exiting the euro zone. A meeting of European finance ministers on Thursday is unlikely to yield any concrete resolution, said Heng Koon How, senior FX strategist for private banking and wealth management at Credit Suisse in Singapore. "The end-June deadline for the 1.6 billion euro repayment to IMF is getting increasingly important," Heng said.
As the dollar retreated, sterling touched a fresh seven-month high of $1.5852 and last traded at $1.5827, steady on the day. Sterling has gained a lift after UK wage growth data on Wednesday gave the strongest indication in some time that Britain's economy is on track to deliver higher inflation and interest rates. The market seems to be shifting its focus toward sterling and UK economic data, said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo, noting that the pound was getting closer to a key chart level at 200 yen.
Sterling last traded at 194.85 yen, having touched a high of 196.03 yen on Wednesday, its highest level since September 2008. The only major currency that failed to capitalise on the broadly softer greenback was the New Zealand dollar, which sagged on data showing economic growth slowed markedly in the first quarter. New Zealand's economy grew a tepid 0.2 percent in the quarter, the slowest rate in two years. The kiwi slid 1.4 percent on the day to $0.6891. It touched a low of $0.6880 at one point, matching a five-year trough set on Wednesday.