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Dollar slides to 2-1/2 month low as Fed rate hike fears subside

EconomyMay 18, 2021 03:32PM ET
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© Reuters. FILE PHOTO: A packet of former U.S. President Abraham Lincoln five-dollar bill currency is inspected at the Bureau of Engraving and Printing in Washington March 26, 2015. REUTERS/Gary Cameron/File Photo

By Stephen Culp

NEW YORK (Reuters) - The dollar dipped on Tuesday for the fourth straight session, reaching its lowest level against a basket of currencies since late February on waning fears that inflation spikes could prompt the Federal Reserve to raise interest rates sooner than anticipated.

U.S. Treasury yields stalled as investors grew more confident that the Fed will hold off on tightening its accommodative monetary policy, despite worrisome indicators that booming demand and scarce supply are sending prices soaring.

Those price increases have stoked fears of longer-term inflation, despite the central bank's assurances that the spikes will be transitory.

"The market has come around to the Fed's expectation that inflation is set to rise over near term but will plateau and decline in the coming months," said Joe Manimbo, senior market analyst at Western Union (NYSE:WU) Business Solutions in Washington.

"The perception is the Fed could lag other central banks in normalizing its policies."

Several Fed policymakers are expected to speak this week and the U.S. central bank is due to release the minutes from its April policy meeting on Wednesday, all of which will be parsed for any signs of a shift in its economic outlook.

"As long as the Fed maintains this very dovish policy stance, that's going to leave the dollar vulnerable," Manimbo added. "Having said that, the Fed signaling a change in course might not be that long in the offing if we see strong data, especially in the job market and inflation."

The dollar index was last down 0.48% at 89.747.

The progress of COVID-19 vaccine deployment and easing of measures to contain the pandemic have lifted higher-risk currencies that stand to benefit most from economic revival.

For an interactive graphic on worldwide vaccine rollout and access, click here https://graphics.reuters.com/world-coronavirus-tracker-and-maps/vaccination-rollout-and-access.

The euro gained 0.63% to $1.223, passing its highest level since Feb. 25, and the dollar fell 0.25% to 108.89 Japanese yen.

The British pound, buoyed by the lifting of COVID-19 restrictions, passed the $1.42 level for the first time since Feb. 24. [GBP/]

"It's a good day for the pound," Manimbo said. "The Bank of England has upgraded outlook for the UK economy and the pound is starting to bear the fruit of that. Britain's strong vaccine rollout has pulled growth forward."

Graphic: Currencies and vaccination rates, https://fingfx.thomsonreuters.com/gfx/mkt/dgkploqeyvb/Pasted%20image%201621335164414.png

Rising oil prices supported the Norwegian crown and helped boost the Canadian dollar to a six-year high. [O/R]

Bitcoin dipped 1.9% to a more than three-month low, extending its slide after Tesla (NASDAQ:TSLA) Inc boss Elon Musk dampened enthusiasm for the cryptocurrency over the weekend.

Rival digital currency ether rose 2.48% to $3,363.

Dollar slides to 2-1/2 month low as Fed rate hike fears subside
 

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Comments (7)
Notvery Goodathis
Peteymcletey May 18, 2021 12:54PM ET
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brrrrr
Wisdom Etom Anieedi
Wisdom Etom Anieedi May 18, 2021 12:54PM ET
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good
Michael Angelo
Michael Angelo May 18, 2021 1:39AM ET
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Sometimes when I read these forecasts and people trying to guess what the tea leaves say I remember that is very hard to sleep when you don't know how to trade. Keep guessing.
Al Gore
Al Gore May 18, 2021 12:38AM ET
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very good
perplexed76 .
perplexed76 . May 18, 2021 12:16AM ET
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like ECB will raise rates
Edward Chong
Edward Chong May 18, 2021 12:16AM ET
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why not ? maybe 20 years later :)
Aw wright
AndrewJW May 17, 2021 11:50PM ET
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regardless of the FED not accepting the recovery is real; Traders won't hold their positions on the hope the FED maybe right. The US10YR will undoubtedly push thru 2.5 this year if not sooner. the sooner the world realises all this printing has already put the US into hyperinflation and for every day the FED deny it; only the bag holders will suffer! the US printed more in Nov and Dec 2020 than the last global 5 financial collapses combined!!! the 6th global collapse is iminent....
Mike Chen
Mike Chen May 17, 2021 11:36PM ET
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Sell dollar and yen.
Larson Leyson
Larson Leyson May 17, 2021 9:43PM ET
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10-Y will finish 2021 around 2.25% ! Mark my words !
Aw wright
AndrewJW May 17, 2021 9:43PM ET
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absolutely correct
 
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