The dollar plunged by the most since the Federal Reserve announced the start of its Treasury bond-buying program seven years ago, as signs of a slowing U.S. economy helped derail bets on diverging policies between global central banks.
The U.S. currency sank more than 1.7 percent against six of its biggest peers amid concern that growth in the world's largest economy is cooling. Currency traders are catching up to the bond market, where 10-year yields sank to the lowest in a year Wednesday and futures are sending the strongest signal yet that traders expect the Fed to stand pat this year.
"The currencies market has been at odds with the rates market, and now the rates market is winning," said Peter Gorra, head of foreign-exchange trading in New York at BNP Paribas SA. "There's a disconnect where the Fed says it's four hikes while the market says it's like 0.7 hike this year — someone is wrong."
Concern about a global demand slump and policy makers' response to a slowing growth worldwide has put the $5.3 trillion-a-day market in disarray. The dollar's pullback this week has reversed all the yen's decline against the greenback on Friday when Bank of Japan introduced negative interest rates to revive inflation, which is stuck near zero.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 global peers, slumped 1.6 percent as of 3:13 p.m. in New York. It dropped as much as 1.9 percent, the biggest loss since 2009 when the Fed opened another front in its battle to boost the economy by pledging to buy as much as $300 billion of Treasuries and stepping up purchases of mortgage bonds.
The dollar slid 1.8 percent to 117.78 yen, erasing all the gains since the Bank of Japan's surprise Jan. 29 move to negative interest rates on certain deposits. The greenback fell 1.6 percent to $1.1089 per euro, after sinking to the lowest since October.
