El-Erian Says Dollar Decline Reflects Markets' Reassessment Of US Monetary Policy: 'Will Be Welcomed' By Many Segments

Allianz chief economic adviser and noted economist Mohamed El-Erian believes the retreating dollar indicates how the markets are reassessing the Federal Reserve’s policy vis-a-vis other advanced economies.

What Happened: The dollar index fell significantly this week following the release of the employment data that showed December payrolls rose more than expected. Wage increases slowed and services activity contracted reducing concerns about the Federal Reserve's interest rate hiking path. 

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Analyst's Take: “Depreciation of the dollar (3-month DXY @markets chart below) reflects the #markets’ reassessment of US monetary policy (less tight) relative to that in other advanced economies. Contributes at the margin to global economic well-being and will be welcomed by many market segments,” El-Erian tweeted, citing a chart of the dollar index.

The dollar index gauges the strength of the greenback versus a basket of currencies. It is currently trading at a seven-month low of 103.13. Expectations have started building up of a reduced hike in the next FOMC meeting as against the 50-bps hike during the last meeting.

Fed Comments: Meanwhile, Federal Reserve officials have said fresh inflation data due on Thursday will help decide the pace of future interest rate hikes.

Atlanta Federal Reserve Bank President Raphael Bostic told reporters if U.S. consumer price data confirms the cooling seen in the most recent monthly jobs report, he would have to take a quarter-point increase "more seriously and to move in that direction."

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