The dollar fell the most in 15 months versus the yen as a bigger-than-forecast drop in retail sales prompted traders to pare wagers the Federal Reserve will increase borrowing costs for much of next year.
The Bloomberg Dollar Spot Index has declined 1.8 percent from a more than four-year high on Oct. 3, when investors were betting stronger growth than in Europe and Japan would lead to higher U.S. interest rates. Futures show the probability of a rate increase in September fell to 35 percent and to 61 percent in December 2015, making it the first instance for a likely move. The euro rebounded, a day after Germany cut its growth forecast for this year and 2015.
“You get clearly the idea that what we’re seeing is some major position squaring of the dollar longs that’s been built over the last month or so,” Thomas Kressin, the Munich-based head of European foreign-exchange at Pacific Investment Management Co., said in a phone interview. “You have a world when Europe isn’t growing, Japan isn’t growing, how much will the U.S. recouple? The rethinking is happening right now.”