R.I.P. Dollar Rally as Dovish Fed Spurs Worst Slump Since 2011

The dollar headed for its steepest three-week slide in more than four years as an increasingly cautious Federal Reserve spurred analysts and investors to downgrade forecasts for the greenback.

A Bloomberg index tracking the dollar against 10 major peers reversed gains from the start of the week and slumped to an eight-month low after Fed officials on Wednesday unexpectedly cut their projections for interest-rate hikes to two this year from the four they estimated in December. Macquarie Bank Ltd., one of the world’s top 10 currency forecasters, turned from dollar bull to short-term bear following the Fed meeting. The yen has been the biggest beneficiary of the demise of the dollar rally, surging to the highest in more than a year and outperforming all its major developed-market peers this week.

“The fact that they didn’t raise rates and wound back expectations for future increases in 2016 has obviously hurt the U.S. dollar -- and that can continue in the very near term,” said Derek Mumford, a director at Rochford Capital Pty in Sydney, “If dollar-yen closes this week below 111, it puts 107, 108 quite sharply in focus. If we get that in the next week, that does open up quite a possibility that we get intervention.”

The Bloomberg Dollar Spot Index was at 1,181.14 as of 10:23 a.m. in Tokyo, down 0.2 percent from Thursday, when it slumped 1.1 percent. It has dropped 1.7 percent this week, and its three-week loss of 4 percent is the biggest since October 2011.

The dollar dropped 0.4 percent to 110.91 yen Friday, on track for a 2.6 percent slide this week. It reached 110.67 on Thursday, the lowest since October 2014. The greenback was little changed at $1.1323 per euro from the New York close, heading for a 1.5 percent weekly decline.

To contact the reporters on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net, Netty Ismail in Singapore at nismail3@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Naoto Hosoda, Amit Prakash

By: Kevin Buckland and Netty Ismail

©2016 Bloomberg News