By Rachel Evans
The dollar slumped the most in one month as upheaval in China’s stock and currency markets weighed on the outlook for higher interest rates in the U.S.
The greenback weakened to its lowest level in almost a year versus the yen after a 7 percent rout in China’s equity markets curtailed trading for the second time in four days. China’s foreign-exchange reserves slid more than forecast in December, capping their first-ever annual decline, prompting speculation that authorities are selling dollars to prop up the currency. Shorter-term U.S. debt yields declined and futures contracts show a 43 percent probability of a U.S. interest-rate rise by April, down from 56 percent on Dec. 31.
Investors are starting to question whether the Federal Reserve can shrug off turmoil in the world’s second-largest economy to proceed with the four rate increases it projects by year-end. Policy makers will assess “international developments” as they consider the timing and size of increases to the benchmark rate, minutes from their latest meeting show. Emerging-market turmoil in August and September, particularly in China, was among reasons the Fed refrained from raising rates until December.
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