The US dollar index dropped to a four-week low this morning on the news that former treasury secretary Lawrence Summers has pulled out of the race to succeed Ben Bernanke as Chairman of the US Federal Reserve. His withdrawal has been accepted by President Obama.
Of all the candidates for the job, Summers was considered by markets to be the most hawkish in terms of his attitude towards cutting monetary stimulus, and it was thought that his appointment would lead to a swifter end to the Fed’s bond-buying programme and a corresponding appreciation of the dollar against other major currencies.
The dollar had rallied strongly on Friday after a report in Japanese business newspaper Nikkei indicated that he was set to land the job when Bernanke’s term ends next year. His withdrawal leaves Janet Yellen, who is perceived to be a lot more dovish than Summers when it comes to fiscal policy, as the front-runner for the job. Yellen currently holds the role of vice-chairwoman of the Federal Reserve board of governors.
Upon the announcement, the dollar plunged to 81.047 against a basket of major currencies, its lowest point since August 21.
The euro climed 0.6% against the dollar at 1.33709, having hit a two and a half week high of $1.3383 earlier in the day, and could be on course to hit the August 20 high of $1.3453 in the near future.
The dollar was down 0.6% against the yen, near the intraday low of 98.45 yen, the lowest point since September 2. Summer’s withdrawal also prompted a decline to 2.8162% in US 10-year treasury yields, which hit a two-year high of 3.007% on September 6.
Against the yen, the dollar was down 0.6 percent at 98.75 yen, close to the day’s low of 98.45 yen which was the lowest since Sept. 2. It was also down against commodity currencies such as the NZD and AAUD, with the Aussie setting a three-month high of $0.9370 and the kiwi jumping to $0.8234, not far off the highs seen in May of this year.