Dollar sinks to 3-month low on rate worries

The dollar was heading for a three-month low on Thursday as investors continued to reassess expectations for the timing of a US rate rise.

The dollar index - which tracks the world's reserve currency against a series of its rivals - fell a further 0.5 per cent to 93.20. The move took it further away from the 12-year peak of just over 100 that it reached in March, before the re-rating of the US's economic performance began.

The latest wave of dollar selling was triggered by data that cast fresh doubt on the amount of room the Federal Reserve has to raise rates.

Retail sales numbers for April missed expectations for the fifth consecutive month.

That miss was "a kidney blow for a lot of people", said Matthew Cobon, fund manager at Threadneedle Investments.

Meanwhile, further signs of economic improvement from the eurozone have helped push the shared currency higher at the expense of the dollar.

On Thursday, the euro gained as much as 0.8 per cent to a session peak of $1.1445. That took it up 9.5 per cent from its most recent trough of $1.0456, which it touched in mid-March.

It comes as bond yields in the eurozone rebound off lows as worries about the worst extent of the downturn in the currency area ease, giving further momentum to the euro.

Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said the renewed dollar sell-off was down to the unwinding of long dollar positions as well as the weak data.

"There does seem to be a more significant position adjustment under way," said Mr Chandler. "The big trade, which had various expressions, was essentially long European stocks and/or bonds and short the euro.

"The unwinding of these positions [has been] driven partly by the poor US news and partly what appears to have been a flash crash of sorts in the German Bund market."

The pound also rose against the dollar, up 0.4 per cent at $1.5798, although it continued to drift down against the euro, weakening 0.4 per cent to £0.7239.

Richard Benson, co-head of portfolio investments at investment manager Millennium Global, said part of sterling's strength was the result of traders fearing an uncertain election outcome coming back into the pound.

"People felt it was rational to be underweight heading into the election. This week has been the buying back of that position," he said.

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