Dollar Heads for Biggest Quarterly Loss in Five Years on Yellen

A gauge of the dollar headed for its biggest quarterly decline in five years as dovish comments from Federal Reserve Chair Janet Yellen this week spurred a rally in stocks and higher-yielding assets.

The U.S. currency was poised for its biggest monthly loss against Australia’s dollar since October 2011 after the Fed chief said Tuesday the central bank should “proceed cautiously” in raising interest rates. The greenback has fallen against all its 16 major counterparts in March, with the biggest declines against commodity currencies such as Brazil’s real, the Aussie and South African rand.

“We’re seeing many investors unwinding their long-dollar bets," said Bernard Aw, a strategist at IG Asia Pte in Singapore. “Even if the Fed raises a second time in June, there is still limited upside room for it to go higher. Monetary conditions have tightened because of a stronger dollar."

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, has dropped 3.9 percent this quarter, the most since the three months through September 2010. The greenback has tumbled 6.7 percent against the Aussie in March and 4.5 percent versus the kiwi.

The dollar gauge pared some of this year’s losses on Thursday, rising 0.1 percent as of 1:08 p.m. in Tokyo. The dollar climbed 0.2 percent to $1.1318 per euro and was little changed at 112.36 yen. The Aussie dropped 0.2 percent to 76.55 U.S. cents.

Traders have cut the odds to zero that the Fed will raise rates at its April 26-27 meeting, from a probability of 56 percent at the end of last year, according to data compiled by Bloomberg based on fed fund futures. The chance of an increase by June has declined to 20 percent from 75 percent.

“A dovish Yellen was positive for stocks and sparked dollar selling and buying of risk assets,” said Keisuke Hino, a foreign-Exchange trader at Mizuho Bank Ltd. in New York. “Selling was most prominent against commodity currencies.”

--With assistance from Mika Otsuka To contact the reporters on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net, Lilian Karunungan in Singapore at lkarunungan@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Nicholas Reynolds, Naoto Hosoda

By: Lilian Karunungan and Chikako Mogi

©2016 Bloomberg News