Dollar Falls as Weak Economic Data Erode Bets on Fed Rate Hike

The dollar fell as tepid economic reports damped demand for the currency after minutes from the Federal Reserve’s last policy meeting left bulls with little to cheer.

The U.S. currency snapped three days of gains versus the euro after housing and jobs data missed forecasts. The greenback weakened versus most of its major peers as traders digested minutes released Wednesday that suggest the Fed is unlikely to increase rates in June, while remaining open to tightening later this year.

“It’s a mixed picture from the data,” Aroop Chatterjee, a New York-based currency strategist at Barclays Plc, said by phone. “The Fed minutes obviously suggest that the Fed is in no mood to raise rates in June; however, they do want to tighten sometime this year.” The outlook for the U.S. economy is still “fairly robust,” he said.

The dollar weakened 0.2 percent to $1.1112 per euro as of 5 p.m. in New York, after touching $1.1062 on Wednesday, its strongest level since April 29.

The U.S. currency fell 0.3 percent to 121.04 yen, halting a five-day gain.

Dollar bulls had been enjoying their best week since March, as a gauge of the currency rallied 1.9 percent into Wednesday’s close from an almost four-month low reached last week.

‘Knife Edge’

The worse-than-forecast data helped put an end to that. Sales of existing homes unexpectedly fell in April and initial jobless claims rose in the week ended May 16, separate releases showed Thursday before an inflation report due Friday. Price increases, excluding food and fuel, slowed to 1.7 percent last month from a year earlier, according to the median estimate of 47 analysts surveyed by Bloomberg News.

By contrast, euro-area reports showed services and manufacturing expanded this month, supporting the 19-nation shared currency.

“We’re on this knife edge in terms of economic data, and the market is probably watching the data now much more closely than it has over the past couple of years,” Douglas Borthwick, head of foreign exchange at New York brokerage Chapdelaine & Co., said by phone. “The odds of a June hike are pretty much on a back burner right now.”

Minutes from the Federal Open Market Committee’s April meeting show policy makers are weighing incoming economic reports as they debate raising borrowing costs for the first time since 2006.

Policy makers repeated that they will raise rates when they have seen further improvement in the jobs market and are “reasonably confident” inflation will move back up toward the central bank’s 2 percent goal over the medium term. Data are “unlikely” to indicate sufficient improvement in the economy by June, setting a high bar for a rate increase next month.

“The one takeaway from the minutes was that data is going to become more and more important,” Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York, said by phone. “The forward-looking data point to continued weakness, so we think the dollar will continue to be under pressure over the next few weeks.”

Before it's here, it's on the Bloomberg Terminal.