By Paul J. Davies

The dollar has slipped this month as the Federal Reserve stuck to its message that it won't raise interest rates soon despite forecasts that the U.S. economy will recover faster than its peers.

The greenback is down more than 1% against the currencies of its biggest trading partners so far in April. Before a slight rise Friday morning, the dollar had seen its worst seven-day losing streak since December.

The fall in the greenback interrupts a rally so far this year: The ICE Dollar Index climbed about 4% from early January to the end of March.

The dollar's weakness is unlikely to last because the U.S. economy is expected to outpace others, according to Oliver Brennan, head of research at TS Lombard in London.

Right now, the U.S. is expected to grow about 2 percentage points more than the eurozone in the year ahead, Mr. Brennan said. The gap hasn't been that large since early 2017, when the dollar was much stronger against the euro: Back then, $1 bought about EUR0.94, whereas now it buys EUR0.84.

The dollar has tended to fall against other currencies in April over the past 10 years, Mr. Brennan said, as a result of disappointing economic data such as gross domestic product.

"There tends to be bad economic surprises in April because of a recent history of winter weakness," Mr. Brennan said. "Investors tend to end up not optimistic enough at the start of the year and then too optimistic by April."

But the dollar has fallen this month despite some strong economic data. That might be due to the fact that Covid-19 and the sudden shutdown of the economy last year has made this year's economic indicators more difficult to set in context.

Other investors and analysts expect the dollar to weaken further as other countries get a grip on Covid-19, roll out their vaccination programs and start to reopen their economies.

Steve Englander, head of global FX research and North America macro strategy at Standard Chartered, said a broader economic recovery would extend the long-term trend of a move out of dollars by global asset managers, and particularly central banks that manage large foreign-currency reserves.

The share of dollars held by reserve managers has declined steadily over the past two decades and recently fell below 60% of their total assets for the first time since the mid-1990s.

"Our expectations of a bounce in global growth and ongoing stimulus do not provide much reason for reserve managers to reverse and start re-accumulating dollars," Mr. Englander said.

Other foreign investors, led by Japanese banks, have also been selling Treasurys as money managers grapple with the outlook for inflation and interest rates in the U.S. That has led to sharp gains in U.S. yields.

Japanese investors mostly hedge their currency exposure when buying U.S. bonds, which should limit the impact on the dollar. However, the rise in Treasury yields ought to attract more funds back to U.S. markets, according to some investors, strengthening the dollar.

A lot will depend on inflation, according to strategists at Bank of America, and in particular whether inflation is high or just higher than now. "While higher inflation could be positive for markets, high inflation could be negative," they wrote in a note Friday.

Write to Paul J. Davies at paul.davies@wsj.com

(END) Dow Jones Newswires

04-09-21 0952ET