Fed officials' caution weakens dollar, sterling rebounds

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The dollar fell broadly on Friday in the wake of cautious comments from two U.S. Federal Reserve officials about global economic growth, while sterling rose following losses tied to fears about a Brexit deal.

The greenback fell to one-week lows versus the euro and a two-week trough against the yen following comments from Fed Vice Chair Richard Clarida, who told CNBC he saw some evidence of global growth cooling.

Clarida also noted key U.S. short-term borrowing rates are close to neutral and said being at neutral "makes sense." Traders perceived his comments to mean the No. 2 Fed official may be open for the Fed to pause its rate-hike campaign sooner than previously thought.

"It's the market's anticipation that the Fed may stop at neutral," said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Investments in Boston. Separately, Dallas Federal Reserve President Robert Kaplan said on Fox Business that global growth will be a bit of a headwind, which may spread to the United States.

Clarida and Kaplan's remarks spurred selling in the dollar, which fell 0.76 against the euro at $1.1412. Against the yen, the greenback was down 0.70 at 112.83 yen.

The dollar also weakened against sterling, reversing some of Thursday's gains. The pound briefly recovered against the euro following its worst day versus the single currency in about 25 months, as U.K. Prime Minister Theresa May clinched backing from some key Brexit supporters with her draft plan for Britain to leave the European Union in March.

A string of cabinet ministers quit on Thursday in protest over the terms in May's Brexit proposal. The resignations sent the pound reeling. Sterling was last up 0.39 percent versus the dollar at $1.2825 but was down 0.35 percent versus the euro at 1.1235.

The euro was also bolstered by hopes that Italian Prime Minister Giuseppe Conte was looking to work with the EU over his government's 2019 budget, which has been rejected by Brussels.

Meanwhile, currency traders are keeping an eye on concrete signs that Washington and Beijing are seeking to de-escalate their trade dispute. A Financial Times report on Thursday said U.S. Trade Representative Robert Lighthizer had told some industry executives that another round of U.S. tariffs on Chinese imports had been put on hold.

A U.S. Trade Representative spokesperson later denied the report. The yuan in offshore trading was steady at 6.9367 per dollar.