Dollar Down Sharply As Yields Plunge On Growth Fears

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The dollar was sharply lower on Thursday, its appeal deeply dented after poor U.S. data added to growth concerns that sent equities tumbling and Treasury yields plunging.

Already on shaky ground after being buffeted by growth concerns over the past few sessions, a string of downbeat economic data including weak retail sales and manufacturing activity numbers dealt Wall Street a fresh blow overnight, sending the S&P 500 .SPX down by as much as 4.4 percent at one point.

Safe-haven U.S. Treasuries rallied in response, with the poor data further diminishing prospects for an early rate hike by the Federal Reserve. The benchmark 10-year yield US10YT=RR momentarily sliced below the 2 percent threshold to a 17-month trough.

The dollar fell to a five-week trough against the yen and a three-week low versus the euro as yields slid. The greenback came off lows as Treasury yields partially retraced their decline, although bargain hunters were half-hearted in their bids.

“There are those out there buying the dollar on dips, but it is difficult for them to commit themselves unless U.S. equities first recover and stop the decline in Treasury yields,” said Junichi Ishikawa, a market strategist at IG Securities.

“There was a fair number of long positions on the dollar that had built up and the recent volatility has provided a good opportunity for fast money accounts to clear out their positions before their books close in November,” he said.

Against the yen, which tends to benefit from risk aversion, the dollar had inched up 0.1 percent to 106.04 JPY= after hitting the five-week low of 105.195.

A slide in Tokyo stocks .N225 to a 4-1/2 month low boosted demand for safe-haven yen and firmly capped the dollar.

The greenback has come hurtling down from a six-year high of 110.09 yen hit at the start of the month, when expectations of an early rate hike by the Federal Reserve were significantly stronger amid a rosier outlook for the U.S. economy.

Factors including poor data, seemingly dovish views expressed at September’s Fed policy meetings and worries of a slowing euro zone recovery weighing on the global economy have since curtailed such expectations.

“It is a tough time for dollar bulls. Even prospects for a rate hike by the Bank of England are being pushed back. It’s prompting a rethink on the whole concept in which higher rates in the UK and U.S. contrast with low rates in the euro zone and Japan,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

The euro was little changed at $1.2827 EUR=, staying within reach of a three-week high of $1.2835 hit overnight.

The common currency, battered by prospects of the European Central Bank easing monetary policy further to stave off deflation in the euro zone, had stooped to a two-year low of $1.2500 earlier this month before the dollar’s fortunes took a turn for the worse.

The euro bounced back against the yen, up 0.3 percent at 136.045 EURJPY= after hitting an 11-month low of 135.04 overnight.

The dollar index .DXY was down 0.3 percent at 84.88 after slipping to a three-week low of 84.472 overnight.

The currency market will once again brace for U.S. data, such as September industrial output and weekly jobless claims due later in the session, and their impact on equities and Treasuries. ECONUS

Commodity currencies such as the Australian dollar, sensitive to potential changes in global demand, slipped 0.4 percent to $0.8797 AUD=D4 after gaining more than a percent on Wednesday.

Source : Reuters