Dollar Drops on Speculation Economic Data Push Back Rates Timing

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The dollar declined after unexpectedly weak U.S. economic reports renewed speculation that the Federal Reserve is in no hurry to raise interest rates.

The Bloomberg Dollar Spot Index dropped for the first time in five days after a private jobs report and a measure of factory output came in lower than projected. This comes before the Labor Department’s nonfarm payrolls report on April 3.

“We’ll probably see some interim softness in the dollar” as economic data are weighed down by extreme weather in much of the U.S. in the first quarter, said Jennifer Vail, head of fixed-income research in Portland, Oregon, at U.S. Bank Wealth Management, which manages $126 billion. “The market may be a bit disappointed on Friday, but it’s still going to be a solid number.”

Bloomberg’s Dollar Spot Index, which tracks the U.S. currency against 10 of its peers, fell 0.2 percent to 1,198.19 as of 5 p.m. New York time. The gauge gained for a ninth month in March, the longest streak in data going back to 2004.

The greenback weakened 0.3 percent to $1.0763 per euro after reaching $1.0458 on March 16, the strongest level since January 2003.

The yen gained for the first time in three days against the dollar, adding 0.3 percent to 119.76. It was little changed at 128.89 versus the euro.

Jobs Reports

The ADP Research Institute’s private employment report showed U.S. employers added 189,000 jobs in March, fewer than in February and below economists’ forecast for gains of 225,000. The Labor Department is projected to report the world’s largest economy added 245,000 nonfarm jobs last month.

“The dollar’s reaction to the jobs data was a slight pull back -- it does put nonfarm payrolls in question,” Lennon Sweeting, a Toronto-based dealer at the broker and payment provider USForex Inc., said by phone. “Job numbers have been fairly strong, but we’d be overreaching if we expect the numbers to provide a big momentum for the dollar.”

Also Wednesday, the Institute for Supply Management’s index declined to 51.5 from 52.9 a month earlier, the slowest pace since May 2013. Readings above 50 indicate growth and the median forecast in a Bloomberg survey of economists was 52.5.

The data slowed a rally that saw the greenback complete a third-straight quarterly gain on March 31. The Bloomberg dollar gauge is up 18 percent since the end of June as more than two dozen central banks, including those in Australia, Canada and Europe, eased monetary policy while the Fed signaled it may lift borrowing costs in 2015 after holding them at virtually zero since 2008.

‘Nervous Market’

The dollar’s ascent has made it vulnerable because the market’s still positioned for further gains, according to Steven Englander, global head of Group of 10 currency strategy at Citigroup Inc. in New York. A weak payrolls report may confirm investor concern that a slowdown in the first quarter wasn’t an aberration.

The world’s biggest currency trader forecasts a gain of 220,000 and said an outcome below that level may lead to a dollar selloff.

“This is a nervous market and we’re getting back to the old-school data-watching,” Eimear Daly, a currency strategist at Standard Chartered Plc in London, said by phone. “It’s all about the U.S. at the moment and what they’re doing and when we’re actually going to get the first interest-rate hike from a major central bank.”

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