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Dollar falls as Fed's Williams' remarks stoke rate-cut bets

A man looks at exchange rates at a currency exchange center in New York July 6, 2015.
Brendan McDermid | Reuters

The dollar extended its losses against the euro, yen and other major currencies on Thursday as remarks from New York Federal Reserve President John Williams increased bets the central bank would lower interest rates at month-end.

Williams said Central bankers need to act quickly and forcefully when rates are low and economic growth is slowing. 

The dollar index fell 0.42% to 96.81, after being mainly flat on the day. 

After Williams' comments, traders increased their bets that the Fed could go deeper than a quarter-point cut at its meeting in late July.

Earlier, the dollar did not budge after U.S. Treasury Secretary Steven Mnuchin told Bloomberg earlier Thursday there has been "no change to the dollar policy."

He later told Reuters that there was no change to the use of a $94.6 billion federal fund intended to stabilize currencies during times of market turmoil.

There has been speculation whether the White House would intervene to weaken the dollar after U.S. President Donald Trump lashed out at Europe and China earlier this month for what he called their "big currency manipulation game."

The euro dipped on Thursday following a report the European Central Bank staff is studying a potential change to its inflation goal, while the dollar was little changed amid bets the Federal Reserve would lower interest rates in two weeks.

Sterling rose for a second day, rebounding from a 27-month low against the greenback, on surprisingly strong UK domestic retail sales last month and developments that would make it harder for the next prime minister to force a no-deal Brexit.

Trading among major currencies was mostly muted as market players wait to see whether the Fed would lower U.S. rates for the first time in a decade and if it would signal more rate cuts down the road. The futures market implied traders are positioned for at least three rate cuts by year-end, with the first decrease at the Fed's July 30-31 policy meeting.

"If it sounds like it's one and done, there would be massive repricing," said Steven Englander, global head of G10 FX research at Standard Chartered. "That would be hard for the market to digest."