U.S. Markets

Dollar retreats, euro rallies on worries over next Fed statement

NEW YORK (Reuters) - The U.S. dollar fell against most major currencies on Monday on concerns that the Federal Reserve could suggest in its next policy statement that the greenback’s gains have gone too far, while a rally in oil prices boosted commodity-linked currencies.

U.S. dollar notes are seen in this November 7, 2016 picture illustration. Picture taken November 7. REUTERS/Dado Ruvic/Illustration

The U.S. central bank is widely expected to raise interest rates on Wednesday for the first time this year and only the second time since the global financial crisis.

With a hike largely priced in, focus has turned to what signal the Fed will send on further policy tightening next year and the dollar’s nearly four percent rally against a basket of major currencies through Friday in the wake of Republican Donald Trump’s U.S. election victory on Nov. 8.

Most of those gains have come about as a result of U.S. Treasury yields shooting higher on expectations that Trump will enact policies that increase spending and debt as well as spur growth and inflation.

“The risks to the dollar would be most acute if the Fed were to flag the risk of a strengthening dollar on the U.S. economy and on global markets,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

The euro rose about 1 percent against the dollar to a session high of $1.0651 EUR= after falling to a one-week low of $1.0526 in early trading. The dollar was last down 0.3 percent against the yen at 115.03 yen JPY=, erasing early gains of about 0.8 percent that took the greenback to a 10-month high against the Japanese currency of 116.12 yen.

The dollar index .DXY, which measures the greenback against a basket of six major currencies, was last down 0.6 percent at 100.980, easing from an earlier 1-1/2-week high of 101.780.

The dollar fell against commodity-related currencies such as the Australian, New Zealand and Canadian dollars after oil prices surged to their highest since mid-2015 on the back of a weekend deal by OPEC and non-OPEC producers to curtail output.

“Commodities are up across the board,” said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago. “That helps emerging market currencies and commonwealth currencies.”

The dollar was last down 0.3 percent against the Canadian dollar at C$1.3140 CAD= after hitting C$1.3108, its lowest level against the Canadian dollar since Oct. 20. The Aussie AUD=D4 was up 0.4 percent against the dollar at $0.7488, while the New Zealand dollar NZD=D4 was up 0.6 percent against the greenback at $0.7181.

Reporting by Sam Forgione; Editing by Chizu Nomiyama and Grant McCool