U.S. dollar's decline reverberates as emerging markets rise with gold
The dollar’s slide is gathering pace and that’s proving as much a boon for emerging markets and commodities as it is a drag for European equities
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The dollar’s slide is gathering pace and that’s proving as much a boon for emerging markets and commodities as it is a drag for European equities.
The Bloomberg Dollar Spot Index sank to its weakest since June before reports on housing starts, inflation and industrial output that may add to signs growth in the world’s largest economy is losing momentum. Emerging-market currencies reached the strongest in more than a year and stocks from those nations gained for a ninth day. The pound jumped as U.K. inflation accelerated in July more than economists predicted, and the yen strengthened through 100 per dollar. Precious metals advanced while European stocks slipped.
The dollar is losing ground as lacklustre data in the world’s biggest economies fuel speculation the Fed will be slow to raise interest rates. The Citigroup Inc. U.S. Economic Surprise Index, which measures whether data beat or miss analyst forecasts, is at the lowest in more than a month. And now, policy makers are also casting doubts on the path of monetary policy, with San Francisco Fed President John Williams saying that the central bank’s policy of targeting low inflation will no longer make sense.
“The unevenness seen over the last couple of weeks in U.S. data has diminished the relative appeal of pursuing dollar strength,” said Ned Rumpeltin, the European head of foreign-exchange strategy at Toronto Dominion Bank in London. Minutes of the last Fed meeting due this week “will be an important platform to signal whether they hope to keep the potential for a 2016 rate hike on their agenda, although markets think that chance is fairly remote right now.”
U.S. data on Tuesday are forecast to show consumer prices were unchanged in July from the previous month and industrial output gains slowed.
Currencies
Bloomberg’s dollar index sank 0.8 per cent as of 6:45 a.m. New York time while the yen appreciated 1.3 per cent to 99.98 versus the greenback, the first time it has strengthened to less than 100 since June 24.
The MSCI Emerging Markets Currency Index added 0.3 per cent and has risen 1.9 per cent this month. South Korea’s won led gains, appreciating 1 per cent, its first increase in three trading sessions. Malaysia’s ringgit advanced 0.5 per cent and South Africa’s rand strengthened 0.4 per cent.
The pound rose 0.8 per cent to US$1.2976, after a Monday close of US$1.2880 that was the weakest since June 1985. Tuesday’s gain cut its loss this month to less than 2 per cent.
Consumer-price growth picked up to 0.6 per cent from 0.5 per cent in June, the Office of National Statistics said in London on Tuesday. Economists had forecast that the rate would stay at 0.5 per cent, according to the median estimate in a Bloomberg survey. The data, which reflected the impact of the pound’s slide on import prices after the Brexit vote in June, were the first hard numbers on the economy in the wake of the result.
Mongolia’s tugrik, the world’s worst-performing currency in August, weakened a 22nd day to 2,243.50 per dollar, the lowest level in Bloomberg data going back to 1993. The currency is suffering as the the nation’s government seeks ways to stabilize an economy it says is in the grip of a crisis.
Commodities
Gold advanced 1 per cent to US$1,352.45 an ounce amid a decline in the dollar. Silver and platinum both added more than 1.1 per cent.
Oil gained, after erasing an earlier loss as the weakness in the dollar overtook speculation that the Organization of Petroleum Exporting Countries will struggle to agree any kind of limit on production next month.
West Texas Intermediate crude advanced 0.6 per cent to US$45.99 a barrel and Brent gained 0.4 per cent to US$48.54.
Nickel dropped 1.3 per cent to US$10,375 a metric ton after posting the biggest advance in more than two weeks on Monday. Copper advanced 1.2 per cent.
Stocks
The MSCI Emerging Markets Index rose 0.3 per cent, heading for the highest close since July 2015. Developing-nation shares have soared about 33 per cent from a January low, driving valuations to the highest level in 15 months.
Qatar stocks climbed after FTSE Group said it would relax the criteria to decide which of the nation’s shares will join its emerging-markets index next month. The QE Index advanced 2.2 per cent, its biggest gain since June 7 and the most among more than 90 gauges tracked globally by Bloomberg.
The Stoxx Europe 600 Index slipped 0.5 per cent. A stronger euro hurts European stocks by making exports less competitive.
Schindler Holding AG led industrial-goods companies lower, sliding 5.3 per cent after forecasting a decline in the global elevator and escalator market. Electrolux AB, which gets more than a third of its revenue from North America, lost 2.3 per cent after a report showed U.S. shipments of major home appliances fell in July.
Antofagasta Plc helped push a measure of commodity producers to the best performance of the 19 industry groups on the Stoxx 600, climbing 7.2 per cent. The company said first-half earnings rose and announcing an interim dividend of 3.1 cents a share.
Linde AG jumped 6.8 per cent, propelling a gauge of chemical stocks higher, after people familiar with the matter said Praxair Inc. has held merger talks with the German industrial-gas company.
S&P 500 Index futures were little changed, with the index having risen to fresh highs on Monday.
Bonds
The U.K.’s 10-year gilt yield was little changed at 0.54 per cent before the Bank of England seeks to buy 1.17 billion pounds (US$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 Treasuries due in a decade fell three basis points to 1.53 per cent. Rates on similar-maturity debt in Germany decreased by one basis point to minus 0.08 per cent.
