NEW YORK (BLOOMBERG, REUTERS) - The dollar had its largest two-day decline since 2009 on Thursday (March 17) as investors recalculated the Federal Reserve's tightening path after the central bank cut forecasts for economic growth and inflation, and set a higher bar for when it may raise rates again.
Against the Singapore currency, the dollar slipped further on Friday (March 18) after closing at 1.3554 in the previous session - its lowest close since July 13, 2015. At 8.58am in Singapore, the dollar was trading 0.3 per cent lower at 1.3510 to the Singdollar.
In Tokyo on Friday, Finance Minister Taro Aso said he would closely watch foreign exchange market moves as the dollar fell to a 17-month low against the yen in response to a dovish statement on Wednesday from the Fed.
"I won't comment on this kind of subject, but I will pay close attention to market moves," Mr Aso told reporters after a cabinet meeting, when asked about a yen's rise to the dollar and its effects on the Japanese economy.
The yen's strength against the dollar had fueled speculation that the Bank of Japan was checking exchange rates with banks, a move that some traders see as a prelude to possible intervention.
The dollar fell to a low of 110.65 yen on Thursday, its weakest since October 2014. It was trading at around 111.32 yen on Friday morning.
The greenback fell against all of its 16 major peers overnight after Fed officials lowered their projections for rate hikes to two this year, and stressed their commitment to reaching their 2 per cent inflation target, saying they need "actual and expected progress" on prices to keep pushing rates up.
The Fed meeting prompted investors to question whether the dollar's rally has run out of steam. Until this year, the US currency had outperformed most developed and emerging-market currencies as the promise of superior economic growth and rising interest rates contrasts with sluggish economic activities elsewhere. But investors are now questioning whether the US can escape the storm of a global slowdown unscathed and continue with a second, or even more, hikes in 2016.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed at 1,182.93 as of 8.11am in Tokyo on Friday, after sliding 1.1 per cent in New York and reaching its biggest two-day decline since March 2009. The greenback was at 111.38 yen from 111.39 on Thursday, when it lost 1 per cent. The dollar's loss was the most pronounced against emerging-market currencies on Thursday, led by advances of more than 3 per cent for South Africa's rand and Brazil's real.
"Putting a little bit more of a dovish tone into the whole statement would suggest that you'd have a much more slower gradual increase, which would suggest a weaker dollar," said Mr Fabian Eliasson, head of US corporate foreign-exchange sales in New York at Mizuho Financial Group Inc. "It caught some people by surprise."
The dollar index has weakened more than 4 per cent this year, paring a 9 per cent gain in 2015 and an 11 per cent rally the year before.
The yen briefly pared its advance versus the dollar just after 8am in New York before resuming gains. The sudden move spurred speculations that Japan's central bank made "rate check" calls to some banks with implicit questions on whether they planned to buy more yen.
A climb to 105 per dollar is likely to prompt Japanese officials to intervene verbally to try and talk it down, while gains past 100 could spur sales of the yen to weaken it, said Mr Eisuke Sakakibara, the former Finance Ministry official dubbed "Mr. Yen" for his role overseeing currency intervention in the 1990s.