Dollar at 2-1/2 month lows on weak U.S. data

by Jonathan Adams

The dollar index was down 0.11% on the day, its lowest since Feb. 25

The dollar held at 2-1/2 month lows on Monday as a weak U.S. employment report spurred investors to shed the U.S. currency, pushing major rivals including the British pound and Australian dollar higher.

The dollar index, which measures the greenback against six rivals was at 90.051, was down 0.11% on the day, its lowest since Feb. 25. Yields on Treasuries with mid-range maturities – between five- and 10-years – were also lower on Monday morning, reflecting expectations the Federal Reserve will maintain its dovish monetary policy for the next few years.

The dollar was lower, not only because of the prospect of a slower U.S. economic recovery, but also because the Fed’s stimulative policies – including its $120 billion a month in asset purchases – are expected by some to raise inflation and therefore lower the value of the dollar.

The dollar suffered the latest in a string of second-quarter setbacks after April’s jobs report Friday showed a sharp slowdown in hiring and a surprise uptick in unemployment. The data supported the Fed’s low interest rate stance and bolstered conviction in the central bank tapering stimulus later rather than sooner, wrote Joe Manimbo, senior market analyst at Western Union Business Solutions.

Manimbo said that U.S. consumer price data on Wednesday and retail sales Friday will share the spotlight this week.

The US created a little more than a quarter of the jobs that economists had forecast last month and the unemployment rate unexpectedly ticked higher, the Labor Department reported on Friday.

The more erratic the recovery on the U.S. labour market, the longer the Fed will take to consider rate steps, Commerzbank strategists said in a daily note.

The British pound was the biggest gainer among the G10 currencies, rallying 1.19% on Monday to $1.415, the highest since Feb. 25.

The Australian dollar was another beneficiary of the weaker dollar. A surge in commodity prices also supported the Antipodean currency. The Aussie dollar was also at its highest since Feb. 25 and was trading 0.38% higher at $0.788.

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