Fed disappoints dollar bulls again, NZD hit by weak GDP

Fed disappoints dollar bulls again, NZD hit by weak GDP

Yuya Shino

SYDNEY (Reuters) - The U.S. dollar languished at one-month lows early on Thursday, having suffered a setback after the head of the Federal Reserve disappointed some who had hoped for a clearer signal on when the central bank will lift interest rates.

Instead, Fed Chair Janet Yellen emphasized that the rate decision was still up in the air and rested squarely on further improvement in the labour market, a longstanding concern.

In their projections, Fed officials also saw slightly lower rates at the end of 2016 and 2017 than forecast in March and more policymakers were now in favour of hiking rates only once or not all this year.

All this was taken as dovish by investors, and resulted in a swift reversal in Treasury yields. The two-year yield slid to 0.6411 percent from 0.7660 percent.

In turn, the greenback beat a hasty retreat against a host of currencies. The dollar index <.dxy> fell as far as 94.114 - a low last seen on May 19 - turning around from 95.178. It last stood at 94.149.

Even the euro climbed to a one-week high of $1.1358 , despite the risk of a debt default by Greece, which is still unable to strike an agreement with its creditors on a deal to unlock fresh funds.

The Bank of Greece said the country's future in the European Union itself could be at risk without a deal, underlining the extent to which officials who once refused any suggestion of "Grexit" are now openly discussing the prospect.

Against the yen, the dollar slipped to 123.430 , from a high of 124.465. The euro fared better, nudging up to a one-week high of 140.31 .

The only major currency that failed to capitalise on the broadly softer greenback was the New Zealand dollar, which sagged on data showing economic growth slowed markedly in the first quarter.

New Zealand's economy grew a tepid 0.2 percent in the quarter, the slowest rate in two years. That took the annual growth rate to 2.6 percent, from a seven-year high of 3.5 percent.

The kiwi shed over half a U.S. cent in reaction to the disappointing figures, reaching a low of $0.6881 . That was just a tick away from a five-year trough of $0.6880 set on Wednesday.

With the Fed meeting done and dusted and little in the way of key economic data out of Asia, the market's attention is likely to shift to a meeting of European finance ministers later on Thursday.

The event is yet another opportunity for Greece to clinch a funding agreement with its creditors, although the chance of a breakthrough looks increasingly remote.

(Editing by Shri Navaratnam)