Yellen's Stop Sign Sends Greenback to Worst Month Since 2011

The dollar headed for its worst month in five years after Federal Reserve Chair Janet Yellen doused speculation the U.S. central bank would pick up the pace of interest-rate increases.

A gauge of the greenback fell toward a five-month low after Yellen said the Fed would act “cautiously” as it looks to raise rates against a backdrop of deteriorating global economic growth. Policy makers including St. Louis Fed President James Bullard and San Francisco Fed President John Williams said last week that a hike as soon as next month is possible. The Australian and New Zealand dollars strengthened for a third day.

“Yellen indicated that core Fed members take into account the global context more than regional officials,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “A June rate hike would be difficult as global financial turmoil earlier this year affects the real economy with a time lag.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, was little changed as of 9:15 a.m. in Tokyo Wednesday, after declining 0.8 percent in New York. It has dropped 3.5 percent this month, set for the worst loss since April 2011. The U.S. currency fell 0.2 percent to 112.48 yen. It weakened 0.1 percent to $1.1297 per euro.

Traders slashed the likelihood of a rate increase in April to zero, down from 6 percent on Monday, and lowered the probability of a hike in June to 28 percent from 38 percent, based on the assumption that the effective fed funds rate will trade at the middle of the new Federal Open Market Committee target range after the next increase.

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

By: Chikako Mogi

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