The U.S. dollar fell across the board on Thursday, moving in line with lower Treasury yields, as investors stuck to their views that the Federal Reserve does not need to raise interest rates any more than it should as inflation is starting to get under control.
The Swedish crown, on the other hand, soared after the country's central bank raised rates, forecast further hikes and said it wanted a stronger currency, adding to the dollar's woes.
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A higher-than expected U.S. jobless claims number further compounded the dollar's losses, as the report suggested labor market weakness that can help bring down inflation.
Initial claims for state unemployment benefits rose 13,000 to a seasonally adjusted 196,000 for the week ended Feb. 4, data showed. Economists polled by Reuters had forecast 190,000 claims for the latest week.
"Fed Chair Powell had the opportunity to turn the screw tighter this week when he had that interview. He didn't," said Amo Sahota, executive director, FX consulting firm Klarity FX in San Francisco.
"That's telling in and of itself. He decided to stick to his narrative and not alarm the marketplace, and cited disinflation. So the market is taking that face value."
Powell had said on Tuesday and last week that disinflation, or a deceleration in the rise of overall prices, has started.
Richmond Fed President Thomas Barkin on Thursday added to the Fed rhetoric on the slowing economy. He said tight monetary policy is "unequivocally" slowing the U.S. economy, allowing the Federal Reserve to move "more deliberately" with any further interest rate increases.
In afternoon trading, the dollar index fell 0.2% to 103.24.
The euro, the biggest component in the dollar index, climbed 0.2% as well to $1.0733, while sterling rose 0.3% against the greenback to $1.2114, with both boosted by improving risk sentiment across markets.
"Investors are still hesitant to go back into dollar shorts before the CPI (consumer price index) report next week. There's a lot of focus on CPI to see whether Powell's disinflation story holds," said Vassili Serebriakov, FX strategist at UBS in New York.
The dollar was down 2% against the Swedish crown at 10.35 while the euro dropped 2% as well to 11.11, set for its biggest daily percentage fall since 2009, after the Riksbank raised its benchmark interest rate by 50 basis points to 3%, and forecast more increases in the spring.
The central bank also said a stronger currency would be desirable to bring down inflation.
Elsewhere, the Australian dollar, often seen as a proxy for risk sentiment, rose 0.8% to US$0.6973 as the safe-haven U.S. currency dipped in line with a rally in equities and other so-called "risk-friendly" assets, helped by strong company earnings.
The dollar rose 0.1% against the Japanese yen to 131.575 yen.
Japan's government is planning to present the new Bank of Japan governor nominee to parliament on Feb. 14, broadcaster TBS reported on Thursday. Markets are closely watching the appointment, as the new governor's agenda will be scrutinized as to how quickly the central bank could phase out its massive stimulus.