Dollar Retreats as Economic Data Seen Delaying U.S. Rate Boost

Updated on
  • Currencies of oil-producing nations rise amid jump in crude
  • Yen strengthens as Kuroda fails to specify new easing measures

The dollar slumped against its major peers after disappointing U.S. economic data last week cut the chance of a September interest-rate increase.

A gauge of the greenback retreated after two weeks of gains. Friday’s below-forecast payrolls data, which came on the heels of a surprise manufacturing slowdown, helped lower the prospect of a hike at the Federal Reserve’s Sept. 20-21 meeting to 36 percent in futures markets, from 42 percent at the end of the week before last.

The yen rallied from a one-month low as Bank of Japan Governor Haruhiko Kuroda said there was scope for further monetary easing, while declining to specify any new initiatives.

“The market still has no concrete idea of the Fed’s reaction” to U.S. data, said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “There’s still quite a lot of uncertainty -- the market doesn’t necessarily want to trade the U.S. dollar stronger now.”

The yen appreciated 0.5 percent to 103.40 per dollar as of 4:40 p.m. in London, after sliding to 104.32 on Friday, the weakest level since July 29. The euro was little changed at $1.1146. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, fell 0.2 percent after climbing 1.5 percent over the past two weeks.

Euro Lags

The euro trailed most of its G-10 peers, weighed down by the prospect of more easing from the European Central Bank when it sets policy on Thursday.

“The ECB meeting is a potential risk event for the euro,” said Petr Krpata, a London-based foreign-exchange strategist at ING Groep NV. “It sort of prevents the euro from rallying against the dollar to the same extent as other currencies like the higher-beta currencies” including New Zealand’s kiwi and Norway’s krone, he said.

Currencies of commodity producing nations were among the biggest gainers amid a jump in crude, with Norway’s krone and the New Zealand and Canadian dollars each rising at least 0.2 percent.

Citigroup Inc.’s U.S. Economic Surprise Index fell to zero, a level it last touched in early July. If it falls below that threshold it would mean data in the nation are falling short of forecasts.

That’s helped cut the chance of an imminent tightening in U.S. policy, with the prospect of a December rate increase dropping to 61 percent, from 65 percent on Aug. 26.

“The disappointing August non-farm payrolls report essentially reduced the risk or delayed a September fed-funds rate hike,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney. “That usually supports the risky assets like the high-yielding currencies.”