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Dollar Slips Against Emerging-Market Currencies

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03/20/2017 | 10:32pm CEST
By Ira Iosebashvili 

The dollar fell against emerging-market currencies Monday, as signals of a more-dovish-than-expected monetary policy from the Federal Reserve sent investors into higher-yielding assets.

The dollar was recently down 0.4% to 18.99 against the Mexican peso, the lowest level since U.S. elections in November. The U.S. currency also lost 0.7% against the South African rand to 12.63, its lowest since August 2015. Other currencies, including the Korean won, Indian rupee and Brazilian real, made gains against the dollar.

Driving the gains are expectations that the Fed will raise rates at a gradual pace. The central bank raised interest rates by a quarter point last week, but made few changes to its economic forecasts, suggesting that it hadn't grown more hawkish on monetary policy despite signs of a firming U.S. economy.

A rate increase in the U.S. would have lessened the attractiveness of emerging markets.

"We are seeing an embrace of high-yielding assets," said Kit Juckes, a strategist at Société Générale. "The danger is, some of these rallies have been in place for a long time."

The Wall Street Journal Dollar Index, which gauges the U.S. currency against a basket of 16 others, was recently down 0.1% at 90.46.

The dollar was also pressured by investor concerns that changes to U.S. trade policy could hamper growth.

World leaders struggled to find common ground on trade at the meeting of the Group of 20 industrial and developing nations over the weekend, as U.S. Treasury Secretary Steven Mnuchin got finance officials to drop a disavowal of protectionism from a closely watched policy statement.

The group's communiqué now ensures the U.S. can still use sanctions or other policy tools to punish trade partners and thwart economic policies the White House believes to be unfair.

"There is an idea that protectionism in general is not good for the U.S. economy or the dollar," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

Ian Talley contributed to this article

Write to Ira Iosebashvili at [email protected]

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