Dollar weakens as U.S. stocks fluctuate while commodities rally

The Dollar Index fell for the third time in four days while stocks and commodities advanced as an unexpected contraction in American manufacturing fueled bets the Federal Reserve will maintain its pace of stimulus.

The Dollar Index, a gauge of the currency against six major peers, slid 0.9% to 82.665 as of 3:34 p.m. in New York. The Standard & Poor’s 500 Index increased 0.3% after the benchmark gauge posted its first consecutive weekly declines since November. The 10-year Treasury yield was little changed at 2.12% after earlier climbing as high as 2.19%. Nickel and silver surged at least 2% and oil rallied 1.5% to pace commodity gains. Turkey’s stocks, bonds and currency slid amid anti-government protests.

U.S. manufacturing unexpectedly contracted in May at the fastest pace in four years, indicating the industry will provide scant support for the world’s largest economy, according to data from the Institute for Supply Management. A separate report from the Commerce Department showed construction spending increased 0.4% in April, less than half the median pace predicted by economists in a Bloomberg survey.

“In terms of the Federal Reserve, we can now say with even more confidence that there is literally zero chance the Fed announces any adjustments to its QE program in June,” Dan Greenhaus, chief global strategist at broker-dealer BTIG LLC, wrote in a note to clients. “It’s too soon to wonder whether ‘bad news is good news’ again but we hope today’s report is not the start of a trend.”

Dollar Weakens

The U.S. currency weakened against 15 of 16 major peers as the yen strengthened beyond 100 per dollar for the first time in almost a month. The Aussie dollar jumped 1.9% to 97.55 U.S. cents before a Reserve Bank of Australia policy meeting tomorrow. The rand rallied 2.6%, rebounding from a four- year low.

Global bond markets posted their biggest monthly losses in nine years in May, with the over $40 trillion of securities in the Bank of America Merrill Lynch Global Broad Market Index falling 1.5% on average, led by a 2% drop in Treasuries.

Thirty-year Treasury bonds increased today, sending yields down one basis points to 3.27%. Two-year rates slipped less than one basis point to less than 0.29%.

Concern that Fed stimulus is poised for a reduction is taking a bigger toll on confidence in bond markets than stocks, based on options trading.

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