Dollar Snaps 4-Day Gain on Unexpected U.S. Manufacturing Decline

  • ISM factory gauge lower than all estimates in Bloomberg survey
  • Currency markets await August report on U.S. employment

The dollar snapped a four-day winning streak as a measure of U.S. manufacturing unexpectedly contracted in August, moderating the outlook for the world’s largest economy.

The U.S. currency weakened after the Institute for Supply Management’s index dropped as investors assess the outlook for the Federal Reserve to raise interest rates following an increase in December that was the first since 2006. Sentiment for tighter central-bank policy had been gaining before Friday’s August nonfarm payrolls report, adding to the greenback’s relative allure.

“One bad ISM result won’t shift the dial, but what it does do is introduce some doubt when markets had been buying the U.S. dollar ahead of this Friday’s nonfarms,” said Bipan Rai, senior foreign-exchange and macro strategist in Toronto at Canadian Imperial Bank of Commerce.

The greenback rallied last month and has trimmed its loss this year to 4 percent as U.S. central bankers signaled that employment and inflation gains have bolstered the case to hike rates. That contrasts with major peers in Europe and Japan who are boosting stimulus.

Bloomberg’s Dollar Spot Index, which tracks the currency against 10 peers, dropped 0.4 percent as of 5 p.m. in New York, after rising as much as 0.2 percent and reaching almost a one-month high. The greenback fell 0.4 percent to $1.1197 per euro and weakened 0.2 percent to 103.23 yen.

The odds of a Fed rate increase this month were 34 percent, futures data showed. The central bank meets on Sept. 20-21 to set policy.

Friday’s employment report will show jobs growth was 180,000 last month, after July’s reading of 255,000. The ISM factory index dropped to 49.4, weaker than the most pessimistic estimate in a Bloomberg survey.

“This was a major downside surprise -- and a bad sign for the U.S. economy,” Jason Schenker, president and chief economist of Prestige Economics LLC in Austin, Texas, wrote in a note. That’s bearish for the dollar, said Schenker, who forecasts the currency will slide to $1.15 against the euro and 100 yen by the end of the year.

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