FX Roundup: Dollar pummels commodity currencies, yen recovers

Speaking at the University of Delaware, Harker said, "It might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike. I am approaching near-term policy a bit more cautiously than I did a few months ago."

Nonetheless, he expected the Fed to be able to raise rates more "meaningfully" in the backhalf of 2016, once financial and energy markets had stabilised.

Harker said he expected the Federal Reserve to be able to "truly normalise" in the second half of 2016 as inflation edges higher to 1.5%, unemployment declines to 4.7% and household consumption increases by 2.7%, underpinning economic growth.

The Philly Fed president was appointed to his post in mid-2015 and would not have a vote on policy until 2017.

The euro, which saw a drop of over 1% overnight, recovered by 1609 GMT to change hands against the greenback at $1.151, albeit still 0.04% in negative territory. European Central Bank President Mario Draghi set the tone for week calling for fiscal stimulus, where possible, and structural reforms to be added to the Eurozone policy-mix.

In his testimony before the European parliament, Draghi said, “Other policies should help to put the euro area economy on firmer grounds. It is becoming clearer and clearer that fiscal policies should support the economic recovery through public investment and lower taxation.

“In addition, the on-going cyclical recovery should be supported by effective structural policies. Compliance with the rules of the Stability and Growth Pact remains essential to maintain confidence in the fiscal framework.”

Meanwhile, the dollar fell 0.83% against the yen to JPY113.65, and the pound was 0.93% lower at $1.4301 on UK inflation data. The British consumer price index retreated by 0.8% month-on-month in January, and increased by 0.3% year-on-year, according to the Office for National Statistics.

Elsewhere, commodity linked currencies endured another torrid session in Europe. The Australian dollar fell 0.71% against the greenback exchanging at US$0.7088, while the New Zealand dollar also fell 1.43% on inflation expectations exchanging at US$0.6653. The greenback rose 0.44% against the Canadian dollar exchanging at CAD$1.3895.

Kit Juckes, head of forex at Societe Generale, said, “Two-year ahead inflation expectations aren't a data point that moves many currencies, but the New Zealand release has taken off most of a percent from the Kiwi dollar.

“The Reserve Bank of New Zealand has more room to ease than any other G10 central bank and that's one reason why we like both shorts in NZD/CAD and longs in AUD/NZD. Not a big data point and a bigger reaction than I'd have expected, but a catalyst for a move we think has further to go over time.”

Finally, in Latin America, the dollar rose against major regional crosses, including the Chilean (up 1.25%), Colombian (up 1.22%), Mexican (up 0.14%) pesos and the Brazilian real (up 1.63%).