Dollar plunges for second day on doubts over 2016 Fed rate hikes

Thu Feb 4, 2016 1:55pm EST
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By Sam Forgione

NEW YORK (Reuters) - The U.S. dollar extended its plunge against major currencies on Thursday as traders sharply unwound bullish bets against the greenback on continued skepticism that the Federal Reserve would be able to hike interest rates this year.

The euro hit its highest level in 15 weeks of $1.12390 against the dollar, while the dollar fell to a two-week low against the yen of 116.655 yen.

The dollar index, which measures the greenback against a basket of six major currencies, hit a roughly 15-week low of 96.259 .DXY.

Against the Swiss franc, the dollar dropped to a 3-1/2-week low of 0.99250 franc CHF=EBS.

"The market came into 2016 with a strong preference for the dollar against virtually all other currencies," said Shahab Jalinoos, global head of FX strategy at Credit Suisse in New York. "That idea has been really challenged."

Many market participants entered the year with expectations that divergence in monetary policy between a tightening Fed and stimulative European Central Bank and Bank of Japan would lead the dollar higher. In December, Fed policymakers had projected four rate hikes this year.

Analysts have said dovish comments from New York Fed President William Dudley to MNI on Wednesday and recent weak U.S. economic data have cast more doubt on the likelihood of a swift pace of Fed rate increases this year. The dollar index posted its biggest one-day decline in two months on Wednesday.

Speculators had cut bullish bets on the U.S. dollar in recent weeks on reduced Fed rate hike expectations. The value of the dollar's net long position was at $23.85 billion in the week ended Jan. 26, marking the fifth straight weekly decline according to Reuters calculations and data from the Commodity Futures Trading Commission.   Continued...

U.S. dollars and euros banknotes are seen in this illustration photo taken at a change bureau in Paris, October 28, 2014. REUTERS/Philippe Wojazer