Dollar falls after weak US economic data cuts Fed rate hike bets

September 6, 2016

Frankfurt (Sept 6)  The dollar tumbled on Tuesdayafter economic data showed the U.S. service sector grew at itsslowest pace since early 2010, which dimmed expectations for anear-term interest rate increase from the Federal Reserve.

The dollar fell to a one-week low against the Japanese yenafter the data, and the British pound rose to its highest levelagainst the dollar since mid-July.

The Institute for Supply Management's non-manufacturingpurchasing managers' index fell to 51.4 last month, far short ofeconomists' expectations and the largest one-month drop sinceNovember 2008. "When you pair that with data we got Friday, which wasnon-farm payrolls, disappointing some, what it does is it startsto kick back interest rate expectations past the Septembermeeting and even lowering them in December too," said JohnDoyle, director of markets at Tempus Inc in Washington.

"You're seeing slightly softer data over the last couple oftrading sessions equals less likelihood the Fed will raise ratesat the meeting this month and with that comes a slightly weakerdollar."

The service sector makes up more than two-thirds of the U.S.economy.

Friday's U.S. non-farm payrolls report showed employers inthe United States added 151,000 jobs last month, missingeconomists' expectations and falling well below readings in Juneand July, which both showed more than 250,000 jobs added in eachmonth.

On Tuesday, the dollar fell more than 1 percent against theyen , slipping to 102.05 yen per dollar.

The British pound rose by 1 percent against thedollar, touching a fresh seven-week high at $1.3443. The euro rose to $1.1255, its highest since Aug. 26 after thedata.

The dollar index dropped 1 percent to 94.821, itslowest since Aug. 26.

The New Zealand dollar was the biggest gainer among majorcurrencies, rising 1.4 percent against its U.S. counterpart toits highest level since May 2015. The kiwi was boosted by theweak U.S. data and a rise in milk prices after a strong dairyauction in New Zealand. The Australian dollar jumped 1.3 percent against thegreenback after the data. The Aussie was also bolstered by theReserve Bank of Australia's decision to leave interest ratesunchanged at 1.5 percent and minimal commentary from the centralbank on the currency's 10 percent rise against the U.S. dollarsince January.

Source: KitcoNews

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