under pressure, on track for biggest quarterly fall in
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[March 31, 2016]
By Anirban Nag
LONDON (Reuters) - The U.S. dollar fell to
its lowest level in five months against the euro on Thursday in trade
dominated by month-end rebalancing flows, putting the dollar index on
track for its worst quarterly performance in five years.
These flows are caused by global portfolio managers adjusting their
existing currency hedges, with many banks taking the view that they
could weigh on the dollar.
The dollar index was on track for its biggest monthly fall since
April 2015 and its largest quarterly loss since March 2011, as
dovish comments from Federal Reserve Chair Janet Yellen continued to
resonate, prompting investors and speculators to cut favourable bets
in the greenback.
The index was down 0.2 percent at 94.555, a five-month low. The
dollar was flat against the yen at 112.25 yen, while the euro was up
0.3 percent at $1.1383, its highest since October 2015.
The common currency was on track to post a quarterly gain of 4.7
"Things have settled down a bit after those comments from Yellen,
with the focus turning to the U.S. jobs data on Friday," said Nordea
FX strategist Niels Christensen.
"More than the employment numbers, what will be important are the
average earnings, and if that misses expectations, then we could see
the dollar come under more pressure," Christensen added. "Yellen has
left the dollar vulnerable to the downside."
U.S. nonfarm payrolls are expected to show the world's largest
economy added 205,000 jobs in March, with the jobless rate steady at
4.9 percent. Average earnings, seen as signalling inflation trends,
are expected to rise by 0.2 percent.
Despite signs of inflation picking up in the United States, Yellen
said on Tuesday the Fed would proceed cautiously in raising rates
and she highlighted external risks such as slower global growth.
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Chicago Fed President Charles Evans on Wednesday underscored that
caution, saying a "very shallow" series of rate hikes over the next
few years is appropriate to buffer the economy from outside shocks
and the risk of inflation slipping too low.
In the European session, the euro zone inflation showed some signs
of improvement, but traders were cautious about pushing the euro too
much higher, given the European Central Bank's ultra-accommodative
"The euro is likely to enter a period of range trading around the
$1.10 level for the rest of the year," said Petr Krpata, currency
strategist at ING.
"The range-trading argument is based on fading effecting monetary
divergence between the Fed and the ECB. The ECB seems to be
reluctant to cut the depo rate further into negative territory while
the Fed is unlikely to embark on an aggressive tightening cycle."
(Additional reporting by Hideyuki Sano; Editing by Gareth Jones)
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