Dollar slips after U.S. data dampen Fed rate hike bets

by Jonathan Adams

The U.S. dollar fell against the euro, yen, and franc on Thursday after U.S. economic data showed weakness in business spending plans, denting expectations for a Federal Reserve interest rate increase in June or July.

The Commerce Department said orders for long-lasting U.S. manufactured goods surged 3.4 per cent last month after increasing 1.9 per cent in March. Economists polled by Reuters had forecast durable goods orders rising only 0.5 per cent last month.

But non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 0.8 per cent after slipping 0.1 per cent in the prior month. These so-called core capital goods orders have now declined for three consecutive months.

Global interest rates and currencies strategist at Macquarie Ltd in New York, Thierry Albert Wizman, said: “The market is not really seeing any signs here of an improvement in business spending”.

The U.S. dollar index, which measures the greenback against a basket of six major rivals, hit 94.938, its lowest level in eight days. The euro rose more than half a percentage point to a session high of $1.1216 (£0.77), rebounding from Wednesday’s 10-week low of $1.1126 (£0.76).

The dollar hit its lowest level in a week against the Swiss franc, at 0.9873 franc (£0.68). The dollar was last down 0.54 per cent against the yen at 109.58 yen (£0.6816) after hitting a session low of 109.42 yen (£0.6805) early in the session.

Fed funds futures contracts on Thursday implied traders saw a 28 per cent chance the U.S. central bank would raise rates in June, down from 32 per cent on Wednesday.

“The market is scaling back some of its confidence in a June or July rate hike,” said Daniel Katzive, head of FX strategy for North America at BNP Paribas in New York.

The dollar’s losses on Thursday chipped away at its gains since May 18, when minutes from the Fed’s April policy meeting signalled the central bank had edged closer to a rate increase in the near term. Hawkish remarks from Fed officials earlier this week also supported bets for a rate rise in June or July.

The dollar index is still about 0.6 per cent higher since the release of the Fed minutes. Investors also were awaiting comments from Fed Governor Jerome Powell on Thursday and a speech on Friday by Fed Chair Janet Yellen.

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