November 19, 2018 / 1:48 AM / 23 days ago

Dollar declines to 2-week low on cautious Fed comments

NEW YORK (Reuters) - The dollar dropped to two-week lows on Monday, pressured by cautious comments about the U.S. economy from Federal Reserve officials suggesting the central bank may be nearing the end of its tightening cycle.

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

Against a basket of six major currencies, the greenback fell to 96.120, its lowest since Nov. 8, after falling nearly half a percent last week, its biggest weekly drop since late September. The index was last down 0.3 percent at 96.208.

Fed Vice Chair Richard Clarida and Dallas Fed President Robert Kaplan on Friday raised concerns over a potential global slowdown that has markets betting heavily that the rate-hike cycle is on its last legs, even as they still signaled further interest rate increases ahead.

Fed Chairman Jerome Powell on Wednesday also cited slowing global growth as a headwind to the U.S. economy.

Capital Economics sees the federal funds rate peaking at 2.75-3.0 percent in mid-2019.

“Although investors now think the rate will peak closer to the bottom of this range than the top...they are still a long way from discounting the substantial rate cuts that we anticipate in 2020 as the Fed responds to a sharp economic slowdown,” said John Higgins, chief market economist, at Capital Economics in London.

The Fed has raised interest rates three times this year and is expected to raise its target again in December, to a range of 2.25 percent to 2.5 percent.

The dollar has been the surprise winner of 2018, having risen nearly 10 percent from April lows thanks to a combination of interest rate hikes and strong economic data. But the growing view that U.S. economic growth may have peaked has begun to erode the gains.

DOLLAR PEAK

In a 2019 outlook note, strategists at Goldman Sachs said the greenback may decline as much as 6 percent against most of its developed market rivals, as the U.S. economy starts to slow with the impact from tax cuts and easy conditions fading through the year.

The euro, meanwhile, rallied against the dollar despite concerns about negotiations between Brussels and Rome on Italy’s budget plans. It was changing hands at $1.1452, up 0.3 percent, after hitting two-week highs earlier.

Ned Rumpeltin, European head of FX strategy, at TD Securities in London, said a clear break above $1.1440, a minor trendline resistance, would target $1.15, while a close above that level would signal a change in trend in favor of the euro.

Elsewhere, sterling remained in the spotlight with the currency expected to stay under pressure until the market gets more clarity on the progress of the Brexit deal.

It rose 0.2 percent versus the dollar to $1.2862 after a 1 percent drop last week as British Prime Minister Theresa May’s draft EU divorce deal met with stiff opposition and several ministers resigned.

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Currency bid prices at 3:07 PM (2007 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar EUR= $1.1452 $1.1418 +0.30% -4.53% +1.1465 +1.1394

Dollar/Yen JPY= 112.5200 112.8200 -0.27% -0.13% +112.8700 +112.4300

Euro/Yen EURJPY= 128.86 128.82 +0.03% -4.68% +129.0500 +128.4800

Dollar/Swiss CHF= 0.9936 0.9997 -0.61% +1.98% +1.0007 +0.9925

Sterling/Dollar GBP= 1.2854 1.2837 +0.13% -4.87% +1.2883 +1.2797

Dollar/Canadian CAD= 1.3172 1.3143 +0.22% +4.73% +1.3201 +1.3142

Australian/Doll AUD= 0.7291 0.7334 -0.59% -6.56% +0.7327 +0.7278

ar

Euro/Swiss EURCHF= 1.1379 1.1415 -0.32% -2.65% +1.1420 +1.1371

Euro/Sterling EURGBP= 0.8907 0.8899 +0.09% +0.27% +0.8931 +0.8868

NZ Dollar/Dolar NZD= 0.6834 0.6876 -0.61% -3.56% +0.6877 +0.6817

Dollar/Norway NOK= 8.4758 8.4390 +0.44% +3.28% +8.4954 +8.4280

Euro/Norway EURNOK= 9.7074 9.6368 +0.73% -1.43% +9.7218 +9.6218

Dollar/Sweden SEK= 9.0050 9.0042 +0.32% +9.79% +9.0211 +8.9826

Euro/Sweden EURSEK= 10.3150 10.2819 +0.32% +4.83% +10.3200 +10.2680

Reporting by Gertrude Chavez-Dreyfuss; Editing by Grant McCool and Lisa Shumaker

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