Dollar Drops to Four-Month Low as Downbeat Outlook Halts Climb

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The mighty dollar isn’t getting any help from U.S. consumers.

The currency erased gains after consumer confidence unexpectedly fell by the most in more than two years, reflecting Americans’ dim economic outlook. The greenback extended a weekly decline after a duo of manufacturing indicators missed expectations, scuppering an earlier rally.

Weaker economic data are “providing a further headache to the U.S. dollar,” Dean Popplewell, vice president of currency analysis and research at Oanda Corp., said by phone from Toronto. “The consumer and investors are looking for that clarity” about the U.S. economy and the timing of eventual interest-rate increases by the Federal Reserve.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major trading partners, was down 0.1 percent at 1,150.19 at 5 p.m. New York time, deepening its decline to 1.2 percent in the past week. The index fell as low as 1,149.06 Friday, the lowest level since Jan. 21.

The greenback fell for the fifth week as tepid U.S. indicators contrast with those in Europe showing stronger growth and stabilizing inflation. The selloff is the longest since Oct. 4, 2013, during a stalemate between congressional Republicans and Democrats over raising the federal debt ceiling.

“The data bodes exceptionally poorly for the U.S. dollar,” Christopher Vecchio, a currency analyst at FXCM Inc. in New York, said in a note.

The dollar fell 0.4 percent to $1.1451 against the euro. It climbed 0.1 percent to 119.25 yen.

Rally Reversed

The currency reversed an earlier rally after the University of Michigan’s preliminary sentiment index dropped to 88.6, the least since October. The reading was lower than the lowest estimate of 68 economists surveyed by Bloomberg.

The dollar had already pared an advance after a weaker-than-forecast reading for the Federal Reserve Bank of New York’s Empire State Manufacturing Survey was followed by data showing factory production stalled in April.

“We’re not seeing the demand side of the economy step in to boost growth,” Shaun Osborne, head of global foreign-exchange strategy at Toronto-Dominion Bank, said by phone. “Better-than-expected data from the euro zone versus worse-than-expected numbers from the U.S. are not necessarily a backdrop that’s supportive” of the dollar, he said.

Meanwhile, the surge in European government bond yields that began last month outpaced increases in the U.S. this week, spurring appetite for euros.

“Movements in bond yields have been a fairly dominant force in euro-dollar,” said Jane Foley, a foreign-exchange strategist at Rabobank International in London.

A narrowing yield differential between German and U.S. government bonds in the recent selloff had pushed the dollar lower against the euro. The yield gap was little changed on Friday at 1.52 percentage points, down from as much as 1.9 points in March, as German and U.S. securities both rose for a second day.

“The long-USD trade requires a pickup in U.S. data,” analysts at Morgan Stanley, including Evan Brown in New York, wrote in a note to clients, referring to bets the dollar will strengthen. “Until this happens, USD is vulnerable to further downward correction.”

(An earlier update corrected the time period in the headline.)

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