The dollar fell against all its G10 peers after comments from Federal Reserve chairman Janet Yellen on inflation spurred investors to lower their expectations on the pace of US rate increases.
The Bloomberg Dollar Spot Index tumbled to its lowest level since September after Yellen told the US Congress Wednesday "there was uncertainty about when and how much inflation will respond to tightening resource utilisation". The euro led gains on expectations the European Central Bank could send hawkish signals at its meeting next week while the pound also rose after the Bank of England's Ian McCafferty suggested in an interview with The Times he favoured faster unwinding of quantitative easing.
“Yellen veered slightly in the dovish direction, which makes sense given the soft inflation readings of late,” said Bipan Rai, a senior macro strategist with the Canadian Imperial Bank of Commerce in Toronto. “That implies the USD should continue to trade defensively while U.S. 10-year yields will likely find it difficult to break above 2.4 per cent near term.”
The Bloomberg Dollar Spot Index fell for a fourth consecutive day. The 10-year Treasury yield lost one basis point to 2.31 per cent after dropping four basis points Wednesday
“If US.prices continue to decline, it’ll be hard for the markets to sustain the current mood toward monetary tightening, and some markets are already starting to feel that now,” said Daisuke Karakama, the chief market economist at Mizuho Bank in Tokyo.
