Dollar stumbles as rate hike expectations pushed back

NEW YORK Thu Apr 10, 2014 3:32pm EDT

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. Picture taken August 2, 2013. REUTERS/Kim Hong-Ji

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. Picture taken August 2, 2013.

Credit: Reuters/Kim Hong-Ji

NEW YORK (Reuters) - The dollar dropped to three-week lows against the yen and the Swiss franc on Thursday, sliding for a second day after minutes of the Federal Reserve's March meeting disappointed investors who had been positioned for an interest rate increase early next year.

The greenback has fallen versus the yen in four of the last five trading days. Against the Swiss franc, the dollar weakened for a fourth straight session on Thursday.

A better-than-expected U.S. weekly jobless claims report failed to lift the dollar, reflecting the broad bearish sentiment on the greenback. The Labor Department said showed new claims for jobless benefits fell to 300,000, near a seven-year low and below the consensus forecast of 320,000.

The data was overshadowed by Wednesday's release of the minutes of the Fed's March policy meeting. The minutes showed officials were worried that the U.S. central bank's rate forecasts might be interpreted by investors as mapping out a more aggressive cycle of rate hikes than was actually expected.

"The events of the past week have tempered expectations for an early rate rise and that has undermined the dollar," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

"Prior to the Fed minutes, the market was expecting a rate increase in early 2015. Now it has been pushed back to the middle or even the second half of next year," he said.

Scott Smith, senior FX trader and market analyst, at Cambridge Mercantile Group in Calgary, said the minutes also spurred a buying frenzy of risky and higher-yielding currencies such as the Australian and New Zealand dollars.

Investors also viewed the discussion in the minutes about the amount of slack in the labor market as dovish, all of which left the dollar struggling against most major currencies.

In late trading, the dollar was down 0.5 percent versus the yen, at 101.41 yen, having fallen to 101.34, its lowest since March 19. The dollar slipped against the Swiss franc to 0.8753 franc, its lowest level in three weeks, as U.S. two-year Treasury yields fell sharply.

The greenback last traded at 0.8760 franc, down 0.4 percent.

The dollar index hit a three-week low of 79.330 .DXY, well below a seven-week high of 80.599 set only last Friday. It last stood at 79.378, down 0.1 percent on the day.

SWEDISH CROWN AND INFLATION

The Swedish crown was the big mover in Europe. It fell to its lowest level in 3-1/2 months against the euro on higher-than-usual volume after inflation data fell short of expectations and cemented expectations the Riksbank will cut interest rates in coming months.

The euro was last at 9.0716 crowns, up 1.0 percent.

Given the dollar's struggles, the euro rose to $1.3889, up 0.3 percent. But traders are wary of pushing it higher because of expectations that the European Central Bank could step up its rhetoric against a strengthening currency and its impact on disinflation.

Bundesbank chief Jens Weidmann reiterated on Thursday that if there is a prolonged period of low inflation, the ECB will consider unconventional instruments. Last week, ECB chief Mario Draghi flagged the chances of quantitative easing.

(Editing by Leslie Adler)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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