Businessmen in front of a currency exchange office in Ankara in August. Photo: umit bektas/Reuters
The U.S. dollar fell Wednesday, led by declines against emerging-market currencies, as investor sentiment about risks facing developing economies showed signs of improvement.
The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, fell 0.2% to 89.23. The dollar fell 2.1% against the Turkish lira to 6.25 lira, 1.7% against the South African rand to 14.64 rand and 1% against the Russian ruble to 66.71 rubles.
The dollar fell Wednesday as investors took their cues from signs that policy makers in emerging markets are taking steps to contain inflation, caused in part by the unexpected gains in the U.S. currency.
Central banks in Turkey and Russia have recently raised interest rates and some investors now view policy makers in South Africa and India as more likely to follow suit. Higher interest rates typically attract investors to a currency.
“The floor’s been put in at this point,” said Matt Toms, chief investment officer for fixed income at Voya Investment Management.
The dollar has gained in 2018 as investors have sought the safety of the world’s reserve currency as tariff fights have stoked tensions among the world’s largest economies. This has raised concerns that a slowdown in international trade could lead to slower growth around the world, particularly for developing economies that depend on exports to sustain activity.
The Federal Reserve has increased its pace of interest-rate increases this year as economic growth has accelerated, boosting the dollar. Policy makers in March raised their forecast for 2018 rate increases to four from three. Officials are widely expected to raise rates at their meeting next week, and at their December meeting.
Strengthening in the dollar has put pressure on commodity prices, currencies supported by the export of raw materials and economies that have large dollar-denominated debts. Those countries’ moves to address inflation have bolstered investor confidence and diminished the desire to flee into safe assets.
“The emerging market central banks are doing what they’re supposed to do,” said Mark McCormick, head of currency strategy at TD Securities. “The market’s tired on the trade-war theme.”
Write to Daniel Kruger at [email protected]