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[NEW YORK] Dollar bulls are running scared as a global bond-market rout gains momentum in Europe.
The greenback weakened against most of its 16 major peers and snapped a three-day rise against the euro as debt from Germany to Italy and Spain tumbled. The surge in European yields that began last month has outpaced increases in the US, spurring appetite for euros.
"It's like a mini-taper tantrum out of the euro zone," Mark McCormick, a foreign-exchange strategist at Credit Agricole SA, said by phone. "The relative interest-rate spreads are driving short-term movements. You can see the euro has a stronger bid."
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, declined 0.5 per cent to 1,163.40 at 5 PM in New York. The gauge slid 3 per cent in April - the first month of losses since June - and touched a three-month low on May 6. The dollar fell 0.5 per cent against the euro to US$1.1213.
The yen rose 0.2 per cent to 119.87 per US dollar, while it slid 0.3 per cent to 134.41 peer euro.
Bonds dropped on Tuesday amid what Goldman Sachs Group Inc termed a "large and vicious" selloff in euro-area securities. Germany's 10-year yield increased seven basis points to 0.67 per cent, Spain's rose eight basis points to 1.82 per cent and yields on similar-maturity Italian debt added eight basis points to 1.84 per cent.
"We've seen the dollar, which was one of the more popular long positions against the euro, come off on the back of some higher yields" in Europe, Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc's RBS Securities unit in Stamford, Connecticut, said by phone.
A long position is a bet on an asset rising in value. "A continued selloff in European fixed income markets with higher rates could keep upward pressure on the euro."
The euro has gained 1.9 per cent in the past month among a basket of 10 developed market peers tracked by Bloomberg Correlation-Weighted Indexes. That rally has pared losses for 2015 to 6 per cent.
The euro is forecast to resume its decline by year-end, as Europe maintains its unprecedented program of monetary stimulus while the US moves toward raising rates for the first time since 2006. The currency will slip against 13 of its 16 major counterparts by Dec. 31, according to predictions compiled by Bloomberg.
Markets will be able to anticipate the first increase in US interest rates by monitoring incoming data, which ought to "help mitigate the degree of market turbulence" when the Fed does move, New York Federal Reserve President William C. Dudley said on Tuesday. Any increase is likely to "signal a regime shift" that will stir financial markets when it occurs, he said.
US. retail sales data due Wednesday may offer clues on the timing of when the Fed will start to tighten policy. They'll show a 0.2 per cent increase in April from the previous month, down from a 0.9 per cent jump in March, according to the median estimate of economists surveyed by Bloomberg.
"There is some ongoing uncertainty on when the first Fed interest-rate hike is going to come," said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. "But underneath it all is the simple fact the Fed is more likely than not going to be the first major central bank to start hiking rates, so the cap on the dollar is going to be fairly limited."