Dollar extends drop on faltering economy

London - The dollar extended last week’s decline as investors became less optimistic about a 2016 interest-rate increase before the release of the minutes of the Federal Reserve’s July meeting.

The chance of the Fed raising rates before the year is out have fallen to 45%, from just shy of 50% before stagnant retail-sales data on Friday cast doubt over the strength of the US recovery.

The odds, as measured by futures data tracked by Bloomberg, had started to climb after a better-than-forecast jobs report the previous week. That data pushed Treasury yields higher, supporting the dollar.

"A week ago, US yields spiked up on the back of the really strong payrolls, but since then they’ve actually given back quite a bit," said Steven Saywell, head of currency strategy at BNP Paribas SA in London.

"So the market has taken back expectations for the Fed to hike."

Still, he said, there’s still reason to be optimistic about the greenback. The Fed is due Wednesday to publish the minutes of its July 26 to 27 meeting, when it upgraded its assessment of the US economy while signalling it’ll take a gradual approach toward tightening policy.

"The Fed is biased toward hiking, and for them not to hike, you need some kind of headwinds or for them to be nervous about downside risks to the economy," Saywell said. "Yields may jump up again, and the dollar could do well.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, fell 0.2% as of 8:49 a.m. in New York, extending last week’s 0.7% slide.

On Friday, it reached the lowest since June 24, the day the UK announced it had voted to leave the European Union.

The yen strengthened 0.2% to 101.15 per dollar, extending three weeks of gains.