Dollar clocks in fourth day of declines

Despite the US holiday, the dollar dominated trading yesterday as it headed for a fourth day of declines, weakening against every major currency. The euro’s jump weighed on European stocks, while gold gained.

Bloomberg’s dollar index approached its lowest level in three years as the euro extended gains that have pushed it to the strongest since 2014. The Stoxx Europe 600 Index fell, even after advances in many Asian stock markets, as the common currency provided a headwind to the region’s exporter-heavy gauge. The yuan touched a two-year high as the People’s Bank of China raised the currency’s fixing to the strongest since May 2016. West Texas oil fluctuated. US markets are shut for Martin Luther King Jr day.

The dollar remains under pressure after capping five straight weeks of declines, even against a backdrop of solid US growth. Traders appear to be more excited by potentially hawkish policy shifts from central banks in Europe and Japan, the improving political outlook in the euro area, and the synchronised nature of global expansion that’s also propelling emerging-market economies.

The single currency – which already has momentum after last week’s progress toward a German government – got a further boost as economists polled in a monthly Bloomberg survey bumped up their 2018 outlook for euro-area growth to 2.2 per cent. That’s close to the decade-high 2.4 per cent pace estimated for last year.

Meanwhile, the German central bank’s decision to include the Chinese yuan in its own reserves was another factor dragging on the dollar. Amid greenback weakness, currencies and equities in developing nations rallied.

The MSCI World Index of developed countries rose 0.4 per cent, reaching the highest on record with its 11th consecutive advance. The MSCI Asia Pacific Index gained 0.5 per cent to the highest on record with the largest rise in more than a week. The MSCI Emerging Market Index climbed 0.1 per cent to the highest on record. The UK’s FTSE 100 Index fell 0.1 per cent, the first retreat in a week. The Bloomberg Dollar Spot Index decreased 0.6 per cent to the lowest in about three years. The euro increased 0.6 per cent to $1.227, the strongest in more than three years.