Dollar Drops to 11-Week Low as Fed Letdown Adds to Trump Anxiety

(Bloomberg) -- A gauge of the dollar dropped to the lowest level in 11 weeks and Treasury yields declined after the Federal Reserve signaled it’s in no hurry to raise interest rates.

The greenback fell versus all its Group-of-10 peers after the Fed left its benchmark rate unchanged Wednesday and continued to describe business investment as being “soft.” The dollar is set for a sixth weekly drop following comments by President Donald Trump and his officials in favor of a weaker exchange rate. Australia’s dollar jumped as the trade surplus climbed to a record. 

“The dollar continues to be on the back foot,” said Mitul Kotecha, head of Asia currency and rates strategy at Barclays Plc in Singapore, who expects the U.S. central bank to raise rates in September and December. “The Fed may hang on to see the new fiscal plans of the U.S. administration before we get a clear indication of how the Fed sees things.”

• Bloomberg Dollar Spot Index falls 0.3%, touches lowest since Nov. 14
  • FOMC disappointed some investors who had expected a signal for a March hike: TD says
  • Continued verbal intervention from Trump administration could push dollar lower, says Hiroshi Kurihara, chief U.S. economist at Bank of Tokyo-Mitsubishi UFJ in New York
• USD/JPY falls 0.6% to 112.56 vs session low of 112.48; may trade within 112-114 range into week’s end
• Japan’s 10-year yield rises 2bps to 0.11%, first time above 0.1% since Jan. 2016
• Treasury 10-year yield falls 2bps to 2.46%
• AUD/USD jumps 0.8% to 0.7645 after climbing to 0.7652, breaking resistance at 0.7600; next key level of resistance at 0.7689 Nov. 8 low
  • Aussie advanced as macro funds bought before trade data release and leveraged accounts initiated long positions after, according to Asia-based FX traders
  • “Australian dollar has spiked on the headline trade balance result, and given the sluggish U.S. dollar and still elevated commodity prices, the Aussie should remain buoyant over the session,” says Peter Dragicevich, a foreign-exchange strategist at Nomura in Singapore
  • Dec. trade balance at A$3.51b versus est. A$2.0b
• NZD/USD gains 0.4% to 0.7307; slow stochastics remain in overbought territory
  • Kiwi earlier dropped as much as 0.5% to 0.7243 after the announcement of an outbreak of tuberculosis among its dairy cattle, before erasing the decline on news the impact was limited to a single herd of 200 animals

--With assistance from Masaki Kondo Mika Otsuka and Michael G. Wilson

To contact the reporters on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net, Netty Ismail in Singapore at nismail3@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds