Dollar Falls as Weak Data Taint Fed Message on Economic Health

What's Going On in the Currency Markets?
  • Services PMI index falls short of forecasts in the U.S.
  • Fed's Lacker says he sees no evidence of looming recession

The dollar fell for a second day versus the yen as a report on the services industry cast a shadow over Federal Reserve reassurances about the resilience of the U.S. economy.

The greenback erased a gain versus the euro after an index tracking purchasing managers at manufacturing, construction and services firms fell to the lowest since October 2013. That contrasted with the picture painted by Fed policy makers including Vice Chairman Stanley Fischer, Kansas City President Esther George and Richmond President Jeffrey Lacker of a growing economy as yet unaffected by volatility overseas.

“It’s been a little bit difficult for the dollar," said Sireen Harajli, a currency strategist at Mizuho Bank Ltd. in New York. "What we’re going to see is really a mixed performance. If you look at dollar yen, the dollar looks very weak."

Mixed economic reports in the U.S. have raised speculation that a slowdown overseas may drag down growth at home. Lacker emphasized that there is no evidence that a recession is looming, saying he expects expansion to continue around 2 percent. Citigroup Inc.’s U.S. economic surprise index, however, remains negative, indicating releases are trailing forecasts, despite touching its highest level in a month this week.

The dollar slumped 0.6 percent to 111.43 yen as of 1:47 p.m. in New York, heading toward its weakest since October 2014. The greenback was little changed versus the euro, after rising as much as 0.6 percent and falling 0.2 percent.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, was little changed after two days of gains.

Economic Watch

A solid outlook for growth remains intact in the U.S., Kansas City Fed President George said Tuesday, with inflation “stable and moving in the direction” of the Fed’s 2 percent target.

Fed Vice Chairman Fischer said he remained uncertain over whether this year’s financial-market turmoil signaled global economic woes that could slow the U.S. economy, saying in a speech Tuesday that it’s “still early” to judge the effects of increased volatility on the U.S.

The dollar strengthened versus currencies of commodity exporters, including South Africa, Norway and Brazil.

“The apparent improvement in the U.S. data of late barely registered with the markets participants,” strategists led by Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London, wrote in a note. “It seems that the U.S. dollar is able to regain ground mainly against the risk-correlated currencies.”

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