NEW YORK (Reuters) - The dollar stumbled on Friday, capping its worst weekly performance against the euro in more than two years, pulled lower by expectations U.S. interest rates will rise more slowly than previously expected.
The greenback also ended the week on a sour note against other currencies, with its largest weekly decline in two months against the Swiss franc and yen, two days after the Federal Reserve downgraded its forecasts for growth, inflation and interest rates. That doused investor expectations of a June tightening.Jens Nordvig, Nomura's head of global foreign exchange, said one major reason for the sharp reduction in the Fed's rate forecasts was the strengthening of the dollar since the U.S. central bank's policy meeting in December."This shows the Fed is highly sensitive to large moves in the dollar and that further dollar strength has the potential to further delay any tightening," said Nordvig.Despite the dollar's weakness, market participants say the decline is temporary and the U.S. currency would have pulled back anyway after steep gains over the last six months."This is just some counter-trend correction in the dollar and is transitory," said Mark Luschini, chief investment strategist, at Janney Montgomery Scott in Philadelphia."I still think the bias for the dollar is to strengthen particularly when you consider it's always against something else. And that something else are other currencies whose central banks are either cutting rates or initiating some form of quantitative easing."In late trading, the euro was 1.3 percent higher against the dollar at $1.0796