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By Bloomberg

Dollar bulls are bewildered amid a sea of setbacks as investors ponder what’s left of the rally that had pundits talking of dollar hegemony just months ago.

The U.S. currency slid Thursday toward the lowest closing level in almost four months against major peers after stagnant retail sales became the latest data to undermine prospects for Federal Reserve interest-rate increases. The greenback climbed nine straight months through March on speculation the first hike in almost a decade was looming. The dollar’s decline brought it to the lowest level in almost three months against the euro on Thursday.

“We didn’t really expect it to weaken this soon,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. “So there is probably an element of surprise even for people like us who are euro-positive and dollar negative.”

Bennett said that investors are still sticking to the view that the dollar will eventually recover to advance against the euro, although he doesn’t think the pair “is going to automatically return to that direction.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major trading partners, slipped 0.3 percent to 1,151.43 as of 7:51 a.m. in New York, after it dropped 0.7 percent on Wednesday in the biggest one-day decline since March 23. The index is down 4.1 percent over the past month, stalling after a 20 percent rally from June 30 to March 31.

The greenback fell 0.5 percent to $1.1410 per euro, after dropping 1.2 percent Wednesday. That brought its decline versus the common currency to about 6.6 percent in the past month. It was little changed at 119.26 yen following a 0.6 percent slide the previous day.

One-Month Outlook

A measure of the euro’s outlook against the dollar over the next month rose to its highest level since 2014. The 25-delta risk reversals climbed to -0.6350 percent, the least bearish since Nov. 20.

Compounding the dollar’s decline against the euro are rising European bond yields relative to those on U.S. Treasuries.

“The further rise in bund yields is keeping EUR-USD bid, and the short-term correlation between the bund-Treasury spread and EUR-USD remains strong,” Kit Juckes, a London-based strategist at Societe Generale SA, wrote in a note to clients.“Until bund yields peak, we can’t think about calling a top in the euro.”

Bund Effect

The extra yield that investors receive for holding U.S. 10- year Treasuries instead of similar-maturity German bunds fell six basis points, or 0.06 percentage point, to 1.51 percentage point on Thursday, the lowest on a closing basis since Feb. 5.

The 19-nation currency was also supported by gross domestic product data released Wednesday that showed an increase of 0.4 percent compared with the fourth quarter of 2014. This was the strongest growth since the second quarter of 2013.

Telefonica SA, Europe’s second-largest phone company, on Thursday reported first-quarter revenue that beat analysts’ estimates, signaling business in Spain is continuing to improve.

U.S. Weakness

U.S. producer prices and jobless claims numbers are due Thursday after data earlier this week showed a surprise halt in retail sales in April.

“It is really all about dollar weakness across the board today, as markets are still digesting the U.S. retail-sales data,” said Keng Goh, a foreign-exchange strategist at Royal Bank of Canada in London. While RBC expects the Fed to increase rates in September, “no doubt some of the weakness in the data will probably diminish that conviction a little bit.”

A Bloomberg survey conducted April 22-24 showed 73 percent of 59 economists said the Fed’s first rate increase since June 2006 will come in September, up from 37 percent in a March survey when a majority predicted an increase in June or July.