U.S. Dollar on Defensive

The dollar dipped against the euro and yen on Tuesday, succumbing to downward pressure from lower U.S. debt yields as investors remained jittery after last week’s surprisingly dovish Federal Reserve policy statement.  The greenback got little help overnight from comments by Federal Reserve officials, some of whom appeared to fall in line with the March 18 policy statement that suggested a less aggressive timetable for hiking interest rates.

Cleveland Fed President Loretta Mester told Bloomberg TV on Monday that the stronger dollar is a signal of economic strength but that it will soften U.S. export growth this year.  Some market players drew comparisons with last week’s Fed statement and Chair Janet Yellen’s comments that were taken as hints of concern about a strong dollar.

Fed Vice Chair Stanley Fischer said the central bank was “widely expected” to begin raising interest rates this year though the policy path remains uncertain, with the latter rather than the former drawing more attention from the wary market.  “The March Fed meeting spelled a big change in the Fed’s outlook. The Fed mentioning the dollar can be traced back to Yellen, and we are now getting a chance to gauge the other officials’ views,” said Shinichiro Kadota, chief Japan forex strategist at Barclays in Tokyo.

Reuters

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