Dollar bulls are bewildered amid a sea of setbacks as investorsponder what's left of the rally that had pundits talking of dollarhegemony just months ago.

The U.S. currency slid Thursday toward the lowest closing levelin almost four months against major peers after stagnant retailsales became the latest data to undermine prospects for FederalReserve interest-rate increases. The greenback had climbed ninestraight months through March with the first hike in almost adecade looming. The U.S. currency fell to its lowest level inalmost three months against the euro.

“It is really all about dollar weakness across the board todayas markets are still digesting the U.S. retail-sales data,” saidKeng Goh, a foreign-exchange strategist at Royal Bank of Canada inLondon. While RBC expects the Fed to increase rates in September,“no doubt some of the weakness in the data will probably diminishthat conviction a little bit.”

The Bloomberg Dollar Spot Index, which tracks the greenbackversus 10 major trading partners, slipped 0.4 percent to 1,150.76as of 6:44 a.m. in New York, after it dropped 0.7 percent onWednesday in the biggest one-day decline since March 23. The indexis down 4.1 percent over the past month, stalling after a 20percent rally from June 30 to March 31.

The greenback fell 0.7 percent to $1.1429 per euro, afterdropping 1.2 percent Wednesday. That brought its decline versus thecommon currency to about 6.8 percent against the euro in the pastmonth. It was little changed at 119.17 yen following a 0.6 percentslide in New York.

A measure of the euro's outlook against the dollar over the nextmonth rose to its highest level since 2014. The 25-delta riskreversals climbed to -0.6450 percent, the least bearish since Nov.20.

The dollar is “dropping like a stone for very good reason,”Jonathan Lewis, a principal at New York-based Samson CapitalAdvisors LLC, said in a note. “The U.S. economy is weakening andwith the Fed on hold an important investment thesis for a bull movein the dollar is gone,” said Lewis, whose company oversees $7.4billion in assets.

A Bloomberg survey conducted April 22-24 showed 73 percent of 59economists said the Fed's first rate increase since June 2006 willcome in September, up from 37 percent in a March survey when amajority predicted an increase in June or July.

Retail sales were little changed in April, Commerce Departmentfigures showed Wednesday. The median forecast of 88 economistssurveyed by Bloomberg called for a 0.2 percent gain. U.S. economicindicators have missed expectations since January, according toCitigroup data.

“There's no way to put lipstick on a pig really, it wasdisappointing,” said Richard Franulovich, the chief currencystrategist for the northern hemisphere at Westpac Banking Corp. inNew York. “Whatever bounce back we see I think is going tounderwhelm, ergo I think more dollar weakness is the order of theday.”

Euro Strength

Compounding the dollar's decline, euro-area gross domesticproduct data released on Wednesday showed an increase of 0.4percent compared with the fourth quarter of 2014. This was thestrongest growth since the second quarter of 2013.

Telefonica SA, Europe's second-largest phone company, onThursday reported first-quarter revenue that beat analysts'estimates, signaling business in Spain is continuing toimprove.

“The combination of that softer dollar, some firming up ofinflation and fewer negative headlines around Greece are certainlypropping up the euro for now,” said Jennifer Vail, head offixed-income research in Portland, Oregon, at U.S. Bank WealthManagement, which manages $126 billion.

Vail said she expects the euro to resume its drop to $1.04against the dollar by the end of this year as the Fed contemplatesraising rates in contrast with the European Central Bank, which iscarrying out unprecedented stimulus measures. That predictionmatches the median estimate of analysts surveyed by Bloomberg.

“The dollar is going to retain its shining-star status,” Vailsaid.

Bloomberg News

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