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U.S. Dollar Extends Losses Amid Dovish Remarks from Fed's Mester

2/20/2019, 10:59:20 AMMarket Analysis
U.S. Dollar Extends Losses Amid Dovish Remarks from Fed's Mester

The U.S. dollar dropped for a third-consecutive session on Tuesday, as further dovish comments from a Federal Reserve member put downward pressure on the greenback.

At 12:02 PM ET (15:02 GMT), the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, dropped 0.22% to 96.52.

Cleveland Fed President Loretta Mester, normally considered to be one of the Fed hawks, stated that she would favor slowing down the balance sheet normalization process.

Mester's remarks joined a wider chorus from the central bank as recent signs of economic weakness, including the largest decline in retail sales in nine years, have forced policymakers to reverse course from a previously more aggressive stance in favor of policy tightening.

“Quantitative tightening, which Federal Reserve chair Jerome Powell likes to refer to as ‘balance sheet runoff’, is no longer on autopilot,” analyst Darrell Delamaide said.

In currency pairs, the pound was favored by dollar weakness. Despite little progress on plans for its departure from the European Union -- U.K. Prime Minister Theresa May is scheduled to meet Wednesday with EU commission president Jean-Claude Juncker amid few expectations for any advances -- sterling benefited from a solid employment report released before the U.S. market open. GBP/USD was last up 0.83% at 1.3026.

The euro also gained against the greenback as closely watched indicator of German economic sentiment saw a better-than-expected improvement in the mood of eurozone’s No. 1 economy. EUR/USD advanced 0.13% to 1.1321.

Dollar weakness also limited the yen’s losses despite comments overnight from Bank of Japan governor Haruhiko Kuroda indicating that the central bank was ready to ramp up stimulus if the strength of the Japanese currency hurt the economy. USD/JPY inched up 0.08% to 110.67.