Dollar heads for biggest quarterly loss since 2011

London - A gauge of the dollar headed for its biggest quarterly decline in five-and-a-half years after dovish comments from Federal Reserve chair Janet Yellen this week spurred a rally in stocks and higher-yielding assets.

The US currency was poised for its biggest monthly loss against Australia’s dollar since October 2011 after the Fed chief said on Tuesday that the central bank should “proceed cautiously” in raising interest rates.

The greenback has fallen against all its 31 major counterparts in March, with the biggest declines against the currencies of commodity-producing nations such as Brazil’s real and Russia’s ruble, as well as the Aussie.

“The key reason behind this dollar softness is that the Fed seems to be more dovish,” said Petr Krpata, a London-based foreign-exchange strategist at ING Groep NV. “What the market has learned over the past few years is that whenever you’re betting on the Fed to start an aggressive tightening cycle, that was the wrong bet.”

ING raised its six-month forecast for the euro to $1.10 over the next six months, from $1.05 previously.

The Bloomberg Dollar Spot index, which tracks the currency against 10 major peers, has fallen 4.2% this quarter, the most since September 2010, and dropped 0.2% as of 12:30 time in its fourth day of losses.

Odds cut

The Aussie was up 0.1% on the day and 7.6% this month at 76.82 U.S. cents, while the real gained more than 10% in March to 3.6034 per greenback. The euro climbed 0.3% to $1.1372, after gaining every day this week, while the yen was little changed at 112.36 to the dollar.

Traders cut the odds of the Fed raising rates at its April 26 to April 27 meeting to zero, from 56% at the end of last year, according to data compiled by Bloomberg based on fed fund futures. The chance of an increase by June declined to 20% from 75%.

“We’re seeing many investors unwinding their long-dollar bets,” said Bernard Aw, a strategist at IG Asia Pte in Singapore, referring to wagers than the US currency will appreciate. “Even if the Fed raises a second time in June, there is still limited upside room for it to go higher. Monetary conditions have tightened because of a stronger dollar.”