Dollar Slumps on Fed Bets as European Stocks Retreat With Oil

The dollar weakened versus all of its major peers and gold jumped the most in two weeks as prospects for a U.S. interest-rate hike this year remained subdued. Equities declined in Europe and Asia as oil retreated.

The Bloomberg Dollar Spot Index sank to its weakest since June ahead of U.S. reports on housing starts, inflation and industrial output. The Stoxx Europe 600 Index fell the most in two weeks as U.S. stock index futures declined. Japanese shares led losses in Asia as the yen climbed toward 100 per dollar. Crude snapped a three-day surge before American stockpiles data and nickel fell following its biggest jump of the month. U.K. government debt gained before the Bank of England conducts a bond-buying auction.

The dollar is losing ground and global equities are near a one-year year high as lackluster data in the world’s biggest economies fuel speculation the Federal Reserve will refrain from raising interest rates amid monetary easing in Asia and Europe. The probability of a U.S. interest-rate increase in 2016 is below 50 percent and the greenback has lost ground versus 15 of 16 major peers in the past month.

“The yen is being driven by the dollar’s weakness, spurred on by increasing expectations the Federal Reserve won’t raise rates this year,” said Nicholas Teo, a strategist at KGI Fraser Securities in Singapore. “If the Fed doesn’t move this year, there’s a risk of steeper moves next year. That’s very dangerous.”

U.S. data on Tuesday are forecast to show consumer prices were unchanged in July from the previous month, while housing starts were at about the same level as in June and industrial output gains slowed. The U.K. will also report on consumer-price growth, which will be the first hard data on how the economy performed in the month following the country’s June 23 vote to leave the European Union.

Currencies

The yen strengthened 0.9 percent to 100.33 versus the greenback as of 8:12 a.m. London time, while Bloomberg’s dollar index sank 0.4 percent.

“The yen could test the 100 mark due to further softening of the dollar,” said Ray Attrill, co-head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney. “A sustained break of that level would up the pressure on the BOJ to take steps at its September meet to support it.”

The MSCI Emerging Market Currency Index climbed to its highest since June 2015 as South Korea’s won strengthened 0.9 percent and the currencies of Malaysia, Hungary and Poland gained at least 0.4 percent.

The pound rose 0.1 percent to $1.2893, after a Monday close of $1.2880 that was the weakest since June 1985. The currency has lost more than 2 percent this month versus the dollar, the worst performance among major currencies.

Stocks

The Stoxx Europe 600 Index declined 0.6 percent, slipping for a third day.
Linde AG jumped 4.4 percent after it was reported to have held merger talks with Praxair Inc., a deal that would create the world’s largest supplier of industrial gases.

Futures on the S&P 500 were 0.2 percent lower, after the U.S. benchmark ended the last session at a record high. Asset managers in the U.S. are favoring stocks over Treasuries, while active equity funds are the most bullish since 2008, according to Bank of America Corp.

The MSCI Asia Pacific Index of shares fell 0.2 percent, extending Monday’s retreat from a one-year high. Japan’s Topix index slid 1.4 percent and the Shanghai Composite Index retreated from its best close since January. Hong Kong’s Hang Seng Index was little changed near a nine-month high.

Bank of Guiyang Co. soared by the 44 percent daily limit on its first day of trading in Shanghai even after a spate of warnings that the nation’s bad loans are understated and lenders may need bailouts in coming years. Jet Airways India Ltd. declined for a sixth day in Mumbai after reporting a 54 percent drop in first-quarter profit.

Oil fell 0.8 percent to $45.37 a barrel in New York as the market weighed expectations for U.S. stockpiles rising further from a record against speculation that informal OPEC talks next month may revive discussions to freeze output. It jumped 10 percent over the last three trading sessions as Saudi Arabia indicated it’s prepared to discuss stabilizing the market. U.S. crude inventories probably increased by 900,000 barrels, rising for a fourth week and keeping supplies above the five-year average for this time of year.

Most industrial metals slipped after an index of the main contracts traded on the London Metal Exchange posted the biggest gain in two weeks on Monday. Nickel dropped 1.5 percent in London, after climbing 2 percent in the last session, and zinc was down 0.3 percent.

Gold added 0.7 percent, buoyed by expectations U.S. interest rates won’t be raised anytime soon. Platinum gained more than 1 percent.

Bonds

The U.K.’s 10-year yield declined one basis point to 0.52 percent, near a record low, before the Bank of England seeks to buy 1.17 billion pounds ($1.5 billion) of debt due in more than 15 years as part of its expanded quantitative-easing program. The central bank fell short of achieving a similar target at last week’s bond-buying auction, spurring gains in longer-dated gilts.

The yield on U.S. Treasuries due in a decade fell three basis points to 1.53 percent. Rates on similar-maturity debt in Germany and Japan decreased by about one basis point to minus 0.09 percent and minus 0.10 percent, respectively.

Noble Group Ltd.’s dollar-denominated bonds fell for a second day after the Singapore-listed commodity trader’s debt rating was cut two levels by Moody’s Investors Service, which said liquidity could come under pressure over the next 12 months amid weaker-than-expected profitability. The notes due 2020 fell to 77.26 cents on the dollar, giving a yield of 15.52 percent.