The U.S. dollar had its worst one day loss on Wednesday since the financial crisis, in a vicious rout that was triggered partly by comments from the Federal Reserve Bank of New York president William Dudley saying that "tighter financial conditions will be taken into account in the bank's next meeting in March". He also warned that a sharp rise of the dollar could have "significant consequences" for the American economy.
The comments almost completely ended most expectations of another rate hike this year, or at least the first half of it, while a piece of disappointing data served to reinforce this, with the U.S. services PMI tumbling to a two-year low in January, sparking worries of persistent weakness in the GDP growth in the current quarter.
The dollar index closed down about 1.6% yesterday. It was last up 0.11% at 97.36, while the greenback tumbled by a similar percentage versus the yen to 117.09, more than wiping out its post-BoJ gains. Dollar fell to three-and-a-half month low against the euro at 1.1088, while diving to a month trough versus sterling at 1.4641.
The collapse of dollar sharply buoyed commodity prices as their futures become much cheaper to holders of other currencies, with oil prices surging more than eight percent yesterday and extending their gains today. U.S. crude futures added another 30 cents, or nearly one percent to $32.58 a barrel, while Brent crude futures climbed 28 cent, or 0.78% to $35.31 a barrel.
Gold futures hit a new three-month high at $1,146 an ounce, while last trading at $1,143. Silver futures rallies to a similar high at $14.82 an ounce before pulling back 0.57% on profit-taking to $14.68. Copper hit a fresh month high this morning at $2.117 a pound, up a strong 0.80%.
Asian shares rallied in response to the possibility of no-hikes this year in the U.S., with Chinese shares jumping 1.50%. Australian shares soared 2.30%, while South Korea's KOSPI gained 1.35%. Japan's Nikkei was a noticeable loser however, as investors fret at the yen's sudden strength, with the index sliding 0.85% to a week low at 17,044.
A bunch of data and events are awaited today, with Britain's central bank meeting today to set monetary policy, expected to keep it unchanged with interest rates remaining at the record low of 0.50%. Investors will be looking for official statements for clues about the future outlook for inflation and policy.
From the U.S., unemployment claims are expected at 279K for last week, almost the same as the previous reading of 278K. A downward surprise could support the battered dollar.