The dollar tumbled to its lowest level against the euro in almost thee months on Thursday, dragged down by weak U.S. retail sales in the previous session.
By early afternoon, the euro was trading around 0.7% higher against the dollar, surpassing the $1.14 mark for the first time since late February. Japan's yen and the British pound rose against the buck too.
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The dollar had a stellar start to the year, but has reversed direction in recent weeks as a spate of weak U.S. data made it appear increasingly unlikely that the Federal Reserve would raise rates in June.
"There is no denying the performance of the U.S. economy is falling well short of expectations" and pushing back rate-increase expectations, which weigh on the dollar, said Lee Hardman, an economist at Bank of Tokyo-Mitsubishi UFJ.
BNP Paribas strategists also said the dollar weakness was likely to continue in the near term, but that they broadly expect the buck to recover as the Fed gets closer to raising interest rates. The latest data, however, "should all but eliminate" the chance of the Fed increasing rates in June, they said.
Eurozone bond markets were mostly stable Thursday after a selloff in recent weeks.
The yield on the German 10-year government bond, or Bund, was slightly higher on the day at about 0.75%, having risen from its all-time low of 0.05% in late April. Yields rise as bond prices fall.
"The bond rout isn't going away for the summer and will weigh on all asset classes," said Nick Lawson, a senior trader at Deutsche Bank. Peter Chatwell, a rates strategist at Mizuho, said that investors were unlikely to start buying bonds again in a big way until the current patch of volatility subsides.
"They are on the sidelines waiting for the market to calm down," he said.
Equity markets were slightly higher early afternoon, recovering from a bout of weakness early in the session that strategists attributed to the robust euro.
The Stoxx Europe 600 was 0.1% higher, having ended the previous session 0.2% lower. Germany's DAX and France's CAC were both up slightly more than 0.3%, while London's FTSE 100 was flat as some weak data out of China put pressure on mining stocks.
A stronger euro against the dollar tends to weigh on companies in the eurozone, which generate a substantial proportion of their revenue overseas.
On Wall Street, stock futures indicated a 0.4% opening gain for the S&P 500. Futures, however, don't always accurately predict moves after the opening bell.
In commodity markets, Brent crude was around 0.3% higher on the day at $67.49 a barrel. Gold was flat at just over $1,218 a troy ounce.
On Wednesday, gold had hit a five-week high with traders pointing to the weak U.S. retail data. Investors said that the number strengthened the case for the Fed holding back from raising interest rates until at least September, which is good news for gold, as it struggles to compete with yield-bearing investments when borrowing costs rise.