Dollar Bulls Bruised Again as Fed Rate-Increase Bets Fade Anew

  • Greenback touches post-Brexit low on U.S. retail sales data
  • Currency reverses tracks for the third week in a row

Dollar bulls were dealt a fresh blow this week as another set of U.S. economic reports sent the greenback plunging.

The dollar touched its lowest level since June on Friday after data showed retail sales unexpectedly stalled last month while wholesale prices posted a surprise decline. The losses capped the third straight week in which the currency reversed course amid conflicting economic signals. Last week wrapped up on a bullish note on brightening payroll data, a week after gross domestic product figures came in much weaker than forecast.

The latest data led traders to curb bets that the Federal Reserve will raise interest rates in coming months, suggesting the dollar may struggle to recoup its roughly 4.5 percent decline this year against major peers. The market-implied likelihood of a rate hike by December fell to 42 percent, from 47 percent a week ago, leaving traders to focus on Fed Chair Janet Yellen’s appearance at Jackson Hole, Wyoming, later in August.

"I’m not sure there are many short-term dollar bulls left at the moment,” said Alan Ruskin, global co-head of foreign-exchange research in New York at Deutsche Bank AG. The data reinforce “the idea Yellen won’t send a strong tightening signal” in remarks at Jackson Hole.

Brexit Reminder

The Bloomberg Dollar Spot Index, which tracks the currency against a group of major peers, fell 0.7 percent this week. It reached the lowest since June 24, when financial markets were in turmoil after the U.K. vote to leave the European Union.

The greenback weakened 0.7 percent to $1.1162 per euro, and by 0.5 percent to 101.30 yen.

The U.S. currency has declined this year as policy makers have held off on boosting rates again after liftoff from near zero in December. Most analysts still expect the dollar to gain, as the Fed has signaled plans to raise rates gradually while other central banks add stimulus. The U.S. currency will strengthen to $1.08 per euro and 105 per yen by year-end, according to the median forecast in a Bloomberg survey.

Hedge funds and other speculators pared futures bets on dollar gains this week, though the net position is still close to the most bullish since February, Commodity Futures Trading Commission data show.

"The markets are reacting like September is completely off the table," said Andres Jaime, a foreign-exchange and rates strategist at Barclays Plc in New York. The dollar "is going to have a hard time rallying, although we do not expect a sell-off either."

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