Dollar tumbles as market responds to dovish Fed

Thu Mar 17, 2016 4:18pm EDT
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By Dion Rabouin

NEW YORK (Reuters) - The dollar tumbled against major currencies on Thursday, extending declines triggered by Wednesday's Federal Reserve statement showing the U.S. central bank would likely take longer to raise rates than some had thought.

The dollar was down more than 1 percent against the euro, yen and Swiss franc, as markets took a more dovish view of Fed Chair Janet Yellen's post-meeting press conference.

Yellen said during the conference that "caution is appropriate" when it comes to raising interest rates and highlighted challenges to the global economy, pointing out she was not convinced underlying inflation had accelerated.

"The shock to markets was that the dovish tone of the statement was in regard to the global growth outlook and the Federal Reserve putting much more weight on how the global growth outlook progresses," said Scott Smith, senior corporate FX trader and market analyst for Cambridge Global Payments in Toronto.

The dollar index .DXY, which measures the greenback against six major currencies, fell more than 1.5 percent to a five-month low during the session. It was last down 1.1 percent at 94.800.

The greenback hit months-old troughs against multiple currencies during the day. The dollar reached its lowest level against the Canadian dollar CAD= since October, and the Australian dollar AUD= reached its best level against the U.S. currency since July.

The dollar was notably volatile against the yen in the morning, moving sharply lower before snapping back. News that the Bank of Japan was asking dealers about recent movements in the yen caused the dollar to trim some losses against the Japanese currency.

The dollar was trading at 111.45, still down 1 percent on the day.   Continued...

Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, in Beijing, China, January 21, 2016. REUTERS/Jason Lee