The dollar fell the most in 15 months versus the yen as a bigger-than-forecast drop in retail sales prompted traders to pare wagers the Federal Reserve will increase borrowing costs for much of next year.
The Bloomberg Dollar Spot Index has declined 1.8 percent from a more than four-year high on Oct. 3, when investors were betting stronger growth than in Europe and Japan would lead to higher U.S. interest rates. Futures show the probability of a rate increase in September fell to 35 percent and to 61 percent in December 2015, making it the first instance for a likely move. The euro rebounded, a day after Germany cut its growth forecast for this year and 2015.
“You get clearly the idea that what we’re seeing is some major position squaring of the dollar longs that’s been built over the last month or so,” Thomas Kressin, the Munich-based head of European foreign-exchange at Pacific Investment Management Co., said in a phone interview. “You have a world when Europe isn’t growing, Japan isn’t growing, how much will the U.S. recouple? The rethinking is happening right now.”
The dollar declined 1.1 percent to 105.92 yen at 5 p.m. in New York after dropping 1.7 percent, the biggest intraday decline since July 2013. The U.S. currency fell 1.4 percent to $1.2838 per euro. Japan’s currency was little changed at 135.99 per euro.
The Bloomberg Dollar Spot Index dropped 0.7 percent to 1,061.00. It reached 1,080.05 on Oct. 3.
Hedge funds and other large speculators raised their net bullish dollar bets versus eight of its major peers to a record 313,878 contracts as of Oct. 7, compared with 281,204 a week earlier, according to data from the Washington-based Commodity Futures Trading Commission.
Brazil’s real led global currency declines on speculation voter polls will signal reduced chances President Dilma Rousseff is going to lose a runoff election that’s less than two weeks away. The currency lost 2.4 percent to 2.4576 per dollar, the biggest loss among 31 major currencies.
The New Zealand dollar was the best performer, rising 1.9 percent to 79.87 cents. GlobalDairyTrade said the average winning price for whole milk powder rose to $2,503 a metric ton from $2,443 at a previous auction. The nation’s Fonterra Cooperative Group Ltd. is the world’s biggest dairy exporter.
Speculation the Fed will raise rates next year as the economy improves had led to a record rally in the U.S. currency. The advance started to reverse last week after minutes of the Sept. 16-17 Federal Open Market Committee meeting showed participants said growth “might be slower than they expected if foreign economic growth came in weaker than anticipated.” Officials also expressed concern about “further appreciation of the dollar.”
The 0.3 percent decrease in U.S. retail sales followed a 0.6 percent August gain that was the biggest in four months, Commerce Department figures showed. The median forecast of 81 economists surveyed by Bloomberg called for a 0.1 percent decline.
Germany’s Economy Ministry yesterday cut its 2014 forecast to 1.2 percent from 1.8 percent, and reduced its estimate for next year to 1.3 percent from 2 percent. China’s consumer prices rose the least in almost five years and factory-gate prices fell the most since April, official data showed today.
“Looks like the hot potato of bad data has been passed from Germany to the United States,” Douglas Borthwick, head of foreign exchange at New York brokerage Chapdelaine & Co., said by phone. “The market was so convinced that a strong dollar was going to be the next move.”
The euro has dropped 0.3 percent in the past three months according to Bloomberg Correlation Weighted Indexes, which track 10 developed-nation currencies. The dollar is up 5.7 percent and the yen has gained 1 percent.