The U.S. dollar continued to be defensive on Tuesday, after creating a fresh low on the break of a technical barrier overnight as momentum sellers joined in the fray.
The dollar index reached a near eight-month low of 93.748 on Monday as the October trough of 93.806 gave way. It has since drifted back to 94.015 in early Asia.
Still, the index has shed nearly 3 per cent after recent dovish comments by Federal Reserve Chair Janet Yellen doused expectations for hikes in U.S. interest rates anytime soon.
Fed funds futures imply barely one quarter point increase for the whole of 2016, with only about a 20 per cent chance of a hike in June priced in.
“In the big scheme of things, since the previous Group of 20 meeting in February, there’s a perception that there’s a political agreement between the United States and China that a strong dollar is not desirable,” a trader at a U.S. bank in Tokyo said.
He said, “In light of this, monetary easing in Europe and Japan has limited power”.
Weakness in the dollar kept the yen and euro not far from multi-month peaks. The greenback recovered 0.3 per cent in Asian trade on Tuesday to 108.24 yen (£0.69), after having slumped to a 17-month low of 107.63 yen (£0.69¬¬) on Monday
“Today we saw people taking profits on their bets for now. But the dollar remains weak and looks likely to fall further in the near future,” said a trader at a major Japanese bank.
The euro was at $1.1406 (£0.80) after touching a six-month high of $1.1454 (£0.80) last Thursday.
Japanese authorities on Monday warned the yen moves were “one-sided and speculative” and that the government stood ready to intervene to weaken the currency.
The dollar largely remained unreactive to comments from Dallas Fed President Robert Kaplan, who said he was “very open-minded” in deciding whether to raise interest rates at a mid-June policy meeting.
Analysts at Commonwealth Bank said short-covering and positioning for some risk that U.K. March inflation may be higher when the data is released later in the day probably drove the currency higher.
For now, traders expect the major currencies to consolidate with no catalysts to change the prevailing theme. But that could change later in the day with several senior Fed officials speaking at events.
In a note to clients, National Australia Bank analysts wrote, “It’s going to be a busy night of Fed speakers with Harker, Williams and Lacker all in the roster”.
“That said…regardless of what other Fed speakers may say, we know that the inner circle within the Fed remains ‘cautious’.”