Dollar Weakens With Fed Divided Over Timing of Rate-Increase

April 8, 2015 Bloomberg

April 8, 2015

By Rachel Evans and Andrea Wong

The dollar fell against most of its major peers as minutes from the Federal Reserve’s last meeting showed policy makers split on when to increase borrowing costs.

Those pushing for a June liftoff were countered by others saying energy-price declines and a stronger dollar would continue to curb inflation, arguing for later in the year. A rash of weaker-than-forecast economic reports has cast a shadow on the greenback, after it appreciated 21 percent among a basket of 10 developed-nation peers in the past 12 months, according to Bloomberg Correlation-Weighted Currency Indexes.

“It does seem like hawks and doves are evenly split at the moment,” Lennon Sweeting, a Toronto-based dealer at the broker and payment provider USForex Inc., said by phone. “I’d expect the dollar consolidation to continue.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, declined less than 0.1 percent to 1,192.62 as of 5 p.m. New York time. It dropped as much as 0.6 percent.

The dollar slipped 0.1 percent to 120.13 yen and rose 0.3 percent to $1.0781 per euro.

The minutes don’t identify the participants or give precise numbers of those holding a certain view as they move toward their first rate increase in almost nine years. The discussion occurred before recent disappointing jobs growth last month.

Policy Debate

“Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting,” according to minutes of the March 17-18 Federal Open Market Committee session released Wednesday in Washington.

While others argued for later in the year, a couple of policy makers said the economy probably wouldn’t be ready for tighter policy until 2016.

“The minutes are pointing to a very hesitant move off the starting block,” Karl Schamotta, director of foreign-exchange research and strategy at Cambridge Global Payments in Toronto, said by phone. “You’ve got gun-shy consumers, cautious lenders and reduced competitiveness driven by the exchange rate, and those are all weighing on the Fed’s path forward.”

Fed Governor Jerome Powell said Wednesday that hidden slack in the labor market justifies a gradual approach to tightening. Fed Bank of New York President William C. Dudley said the central bank should err on the side of waiting too long as it considers when to raise interest rates for the first time in almost a decade.

Dudley Stance

“Our intention would be to be conservative,” Dudley said in remarks on Wednesday at an event hosted by Reuters in New York. “I think there are strong arguments for being a little on the late side.”

Employers added 126,000 jobs in March, a report showed last week, breaking a yearlong streak of monthly gains exceeding 200,000, the longest such stretch since 1995.

“In order for June to truly be on the table, we need to see a substantial revision to Friday’s report and well above 250,000 for the next two employment releases,” said Jennifer Vail, head of fixed-income research in Portland, Oregon, at U.S. Bank Wealth Management, which manages $126 billion. “The second quarter is going to be a high volatility period for the dollar.”