On Monday the dollar was broadly lower, as markets paused after the greenback's broad rally sparked late
last week by signs of potential easing in the euro zone and a surprise
rate cut in China.
The dollar was lower against the yen, with USD/JPY sliding to 120.97, after rising to two-month highs of 121.47 late Friday.
EUR/USD was last at 1.1018 while GBP/USD climbed 0.18% to 1.5336.
The greenback was higher against the Swiss franc with USD/CHF last trading at 0.9823, up 0.40%.
The dollar rallied late last week after European Central Bank President Mario Draghi signaled that further monetary easing is likely later this year. His remarks underlined the diverging monetary policy stance between the Federal Reserve and other central banks.
The Federal Reserve is likely
to stand pat this week while keeping its options
open for its important December meeting as it assesses signs of more muted
growth in the U.S. economy. The majority of Fed officials including chair
Janet Yellen have said they expect the first upward move in the federal
funds rate to happen this year, but the picture has become dull in
recent weeks because of slower hiring and a high-level policy split among the Fed’s governors.
Indeed, two Fed governors - Lael Brainard and Daniel Tarullo - took the unusual step of publicly distancing themselves from Yellen’s recent analysis, signalling they are uncomfortable with the idea of increasing rates this year. Meanwhile, 8 of the 12 regional Fed presidents have signaled via a symbolic vote on the Fed’s discount rate that they are supporting tighter monetary policy.
President of the New York Fed William Dudley said two weeks ago that if the economy performance matched his forecasts, he would still advocate a move before the year-end, but he added there were signs that growth had recently slowed.
More inspiring developments in markets recently may help the case of those who stand for tightening. Stock futures have rallied partly because of better economic numbers from China, as well as suggestions from ECB president Mario Draghi that he may further ease policy in December.
While the dollar was elevated on Thursday by Draghi’s comments, the
currency-induced drag on U.S. financial conditions was eclipsed by
a rally in equity and credit markets, says Jan Hatzius, chief
economist at Goldman Sachs. Further stimulus by the People’s
Bank of China was also encouraging for markets.
Some analysts suggest that extra accommodation by overseas central banks will be considered to be positive by the Fed - even if it drives upward pressure on the dollar.
Michael Hanson, an economist at Bank of America Merrill Lynch, said: “Financial conditions have generally improved since the September meeting, while both the ECB and the PBOC have signalled further policy easing. Given that the FOMC noted it would be ‘monitoring developments abroad’, these actions should reduce global risks among Fed officials and make it easier on the margin to hike rates.”
