The dollar traded lower against its main rivals, paring gains after minutes from the Federal Reserve’s January meeting disappointed investors as officials argued for maintaining interest rates near record lows for longer as a result of risks associated with the economy.
The U.S. currency dropped against a basket of peers as committee members highlighted the strength of the currency, global concerns from Greece to Ukraine, and sluggish wage increase as factors standing against the first rate rise since 2006. The greenback rose earlier against its emerging market counterparts on optimism higher U.S. rates could shift investments toward the world’s largest economy from developing nations.
“The dollar strength is one of the reasons, combined with wage growth, why June may not be the liftoff,” Jennifer Vail, head of fixed-income research at U.S. Bank Wealth Management, which manages $122 billion in assets. “They’re just being very cautious and very balanced about their approach because at this point it’s obvious they do not have consensus.”
“Their concern about a strong dollar came through, and that puts summer for a rate hike as a very unlikely timetable — we’re probably looking at the fall,” Alfonso Esparza, senior currency analyst at Oanda Corp., said by phone from Toronto. “They don’t want to raise rates too soon and have the strong dollar and higher rates damp the growth of the U.S. economy.”
Although the closely watched of all the economic indicators non-farm payrolls data released earlier this month showed strength, recent US economic data failed to remain consistently strong. That caused Fed policymakers to express concern that lifting interest rates early could chill the US economic recovery in the minutes issued on Wednesday.
“Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time,” according to the record of the Jan. 27-28 Federal Open Market Committee meeting released on Wednesday in Washington.
The main lending rate has been kept between zero and 0.25 percent since 2008.
The dollar made gains since the FOMC said after its last meeting it “can be patient” as it takes into account when to lift the benchmark interest rate, even as the labor market was described as “strong.” Later, payrolls data was better-than-expected for the month of to cap the strongest three-month gain in 17 years.
“This will take some of the steam off the dollar’s rally,” said Scott Smith, senior market analyst with Cambridge Mercantile Group, which provides currency-hedging services to corporations. “But it doesn’t change the bigger picture of a longer-term dollar uptrend.”
Mr. Smith said that the Fed is trying to make markets ready for a rate hike this year without shocking them, Mr. Smith said. Fed officials want to become 100 percent sure that the domestic economy has sufficient momentum and that problems in its growth are reduced, he said.
