The dollar retreated following its longest weekly rally of 2015 as a selloff in stocks and commodities fueled concern global growth will sag as the U.S. considers raising interest rates.
The U.S. currency weakened against most major peers amid renewed questions about whether the U.S. faces enough inflation pressure to warrant an increase in borrowing costs. The Federal Reserve meets this week to consider when to tighten monetary policy for the first time since 2006.
“It’s possible that the market is looking at Fed expectations and taking the dollar more notably into account,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said by phone. “Lower oil prices can potentially be lowering inflation and inflation expectations.”
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, declined 0.4 percent to 1,204.57 at 5 p.m. in New York, after rising to 1,212.78 on Friday, the highest since March 19. The gauge gained for the past five weeks, the longest stretch this year.
The dollar weakened 1 percent versus the euro to $1.1088. It earlier reached $1.1129 per euro, its weakest since July 13. The U.S. currency fell 0.5 percent to 123.25 yen.
“The weakness in commodity prices is prompting some market participants to doubt whether the Fed will begin to raise rates in September,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “This obviously takes some of the shine off the dollar in the very near term.”
The dollar remained lower after a report showed U.S. orders for business equipment rose in June for just the second time this year.
Fed Chair Janet Yellen, who will oversee the two-day Federal Open Market Committee policy meeting starting Tuesday, reiterated this month that increasing interest rates will depend on “unfolding data in the months ahead.” She said she expected to raise borrowing costs this year, with subsequent increases proceeding gradually.
“I wouldn’t necessarily say that the U.S. won’t hike just because of the weakness in commodities,” said Petr Krpata, a foreign-exchange strategist at ING Groep NV in London. “The U.S. is one of the most closed economies in the Group-of-10 space. What matters for them is the internal situation, not the external situation.”
Gross domestic product data for the second quarter to be released July 30 is forecast to show the economy grew at a 2.5 percent annualized pace after contracting 0.2 percent in first three months of the year, according to a Bloomberg survey of economists.
Adam Cole, London-based head of global foreign-exchange strategy at Royal Bank of Canada, wrote in a note to clients that while he expects a September interest-rate rise, the FOMC statement to be released July 29 will reflect a “non-committal approach” where “there will be no explicit tweak to the guidance signaling a hike is imminent.”
There’s a 40 percent chance the Fed will increase its benchmark rate by September, according to futures data compiled by Bloomberg. The central bank has kept its benchmark in a range between zero and 0.25 percent since December 2008 to spur growth.