Dollar sets four-week low as Fed's dovish message takes hold

TOKYO: The US dollar sank to a new four-week low versus major peers on Thursday as Treasury yields pulled back from last month's surge, with investors increasingly convinced by the Federal Reserve's arguments that interest rates will stay low for some time.

The dollar index, which tracks the greenback against six rival currencies, dipped to the lowest since March 18 at 91.559 in the Asian session before recovering to be basically flat at 91.666.

The euro rose as high as a four-week top of $1.1989, matching the highest level since March 4, before trading mostly unchanged at $1.19735.

The dollar changed hands at 108.87 yen, after hitting a three-week low of 108.755 on Wednesday.

"The dollar has been losing steam a bit in line with falls in US bond yields as the Fed has maintained its dovish stance," said Yujiro Goto, chief currency strategist at Nomura Securities.

Repeated assurances from Fed officials that it will keep interest rates low have helped stabilise US bonds, especially at the short end of the market.

While many investors remain nervous the Fed could change its tone later this year if inflation readings swing much higher than expected, for now they are content to give the Fed the benefit of the doubt. Ten-year US bond yields eased to 1.6342% in Asian trading, well below a 14-month peak of 1.776% hit late March, reducing the dollar's yield attraction.

Meanwhile, stocks have marched higher, with the S&P 500 setting new records this week.

"Risk sentiment is improving," dragging on bond yields and the dollar, said Osamu Takashima, chief currency strategist at Citigroup Global Markets Japan.

"I believe the dollar weakening trend could continue," with a move toward 108 yen and $1.205 per euro in the very near term, he said. Fed Chair Jerome Powell said on Wednesday that in time the US central bank will reduce its monthly bond purchases before it commits to an interest rate increase, a scenario many investors have regarded as a given.

A weaker US dollar also saw commodity currencies supported. The Australian dollar rose at high as $0.7745 on Thursday for the first time since March 23, following a 1% rally in the previous session that saw it break out of its tight trading band over the last few weeks.

The New Zealand dollar likewise hit a three-week high of $0.7160.

"When economic data is strong and the Fed is not turning hawkish, we could see risk-sensitive currencies gaining against both the dollar and the yen," said Nomura's Goto.

Thursday is busy with US data, including retail sales readings for March and weekly jobless figures due at 1230GMT.

Bitcoin stood near the record high of $64,895.22 hit on Wednesday, when cryptocurrency platform Coinbase made its debut in Nasdaq in direct listing. The world's most popular digital token last changed hands at around $63,250.

After a volatile trade, the stock closed at $328.28, which gave the firm market capitalisation of $65.39 billion, about the same as New York Stock Exchange owner Intercontinental Exchange Inc.