US Dollar Posts Worst Week of the Year as Yields Drop on Dovish Fed Minutes

The U.S. Dollar finished lower against a basket of major currencies last week, completing its worst week of the year, after ongoing loose Federal Reserve policy, a drop in Treasury yields and surprisingly soft U.S. jobs figures prompted investors to trim their long bets. The dollar index did recover, however, on Friday as a jump in producer prices helped Treasury yields recover some of their earlier losses.

Last week, June U.S. Dollar Index futures settled at 92.160, down 0.890 or -0.96%.

Fed Expects to Keep Supporting Economy ‘For Some Time,’ Minutes Show

Federal Reserve officials remain wary about the ongoing risks of the coronavirus pandemic and are committed to bolstering the economy until its recovery is more secure, minutes of the U.S. central bank’s latest policy meeting showed last Wednesday.

With their own forecasts projecting the strongest run of U.S. economic growth in nearly 40 years, “participants agreed that the economy remained far from the (Fed’s) longer-run goals and that the path ahead remained highly uncertain,” the minutes from the March 16-17 meeting said.

“Participants noted that it would likely be some time,” before conditions improved enough for the central bank to consider reducing its current level of support.

Labor markets were improving, but remained gashed by the pandemic. Inflation would pick up, the minutes noted, but likely subside next year. A recent jump in U.S. Treasury yields was “generally viewed … as reflecting the improved economic outlook.”

Treasury Bonds Finish Lower, Weakening Dollar Demand

Yields fell last week following dovish comments from the economy from Federal Reserve Chairman Jerome Powell. He called the recovery from the pandemic “uneven” on Thursday, signaling a more robust recovery is needed. This move dampened the U.S. Dollar’s appeal as an investment.

“The recovery remains uneven and incomplete,” Powell said Thursday in a virtual event presented by the International Monetary Fund and moderated by CNBC’s Sara Eisen. “This unevenness that we’re talking about is a very serious issue.”

Treasury yields moved rapidly moving higher earlier this year over concerns about inflation, amid the economic recovery from the coronavirus. However, the Federal Reserve has said it will let inflation run hotter if this helps achieve full employment.

Mixed Economic Data Fuels Volatility

Helping to pressure yields and the dollar was a report that showed first-time claims for unemployment insurance rose more than expected the week-ending April 3. The Labor Department reported Thursday first-time claims during the period totaled 744,000, well above the expectations for 694,000 from economists surveyed by Dow Jones.

On Friday, however, the benchmark U.S. Treasury yield and the dollar index rose after the March producer price index, which measures wholesale price inflation, showed a larger-than-expected increase.

The March PPI data showed a rise of 1.0%, compared with a projected rise of 0.4% from economists surveyed by Dow Jones. The majority of the increase came from a jump in prices for final demand goods, the U.S. Bureau of Labor Statistics.

For a look at all of today’s economic events, check out our economic calendar.