The US dollar on Friday slumped for the first time in four days versus the euro and the yen as US economic reports fell short of forecasts, clouding US Federal Reserve plans to boost interest rates.
Bloomberg’s gauge of the greenback versus 10 peers slipped following its best two-day gain in three weeks amid reports showing manufacturing declined by the most in more than a year last month and industrial production slumped. Consumer confidence unexpectedly fell this month to the weakest level in seven months.
Patchy domestic data have sapped a nascent US dollar bounce from a nine-month low. Fed policymakers are scrutinizing whether the economy can flourish under higher interest rates.
Atlanta Fed President Dennis Lockhart on Thursday said that he would no longer push for a rate increase this month in light of weakening growth and still-low inflation.
“The data certainly is a big driver of the dollar’s weakness,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc. “That’s letting some of the steam out of the dollar’s marginal rally this week.”
The US dollar lost 0.1 percent to US$1.1284 per euro and 0.6 percent to ¥108.76 as of 5pm in New York. The Bloomberg Dollar Spot Index fell 0.2 percent, paring a 0.7 gain during the previous two days.
Economic reports have trailed analyst estimates since the start of the month, according to a Bloomberg economic surprise measure.
Manufacturing output unexpectedly declined last month, a report showed on Friday, indicating factories remain under pressure from tepid overseas markets.
Industrial production, including mines and utilities, slumped by a weaker-than-estimated 0.6 percent for a second month. Consumers are also feeling less optimistic about the US economy, with a University of Michigan sentiment index falling to the lowest since September last year.
That is weighing on expectations for rate increases this year. The Fed projects two hikes, while traders see a 50 percent likelihood of a rise by year-end, futures data show. The calculation assumes the effective fed funds rate would average 0.625 percent after the central bank’s next increase.
In Taipei, the New Taiwan dollar slid NT$0.88 to NT$32.348 on Friday. However, it was up from NT$32.45 a week earlier.
In the UK, currency strategist remain preoccupied with the EU referendum in June and the potential for further losses in the pound, despite a slew of data being released next week, some of which are likely to show that the economy is in good shape.
Data due on Wednesday would show UK unemployment remained at a decade-low of 5.1 percent in February, while wage growth accelerated, economists surveyed by Bloomberg predicted. That follows a report this week that showed faster-than-forecast inflation.
Still, the net cost of three-month contracts hedging against sterling losses versus the US dollar climbed to 4.7 percentage points this week, the highest since Bloomberg began compiling the risk-reversals data in 2003. And while the pound climbed against the greenback in the week, it was down against all but one of 16 peers this month, cementing its status as the worst-performing major currency this year.
“The market will be looking less at data and more toward Brexit risks,” said Steven Barrow, London-based head of G10 research at Standard Bank Group Ltd.
Traders are watching for “a direction one way or the other as far as the polls are concerned,” he said.
The pound climbed 0.5 percent this week to US$1.4227 as of 5:07pm in London on Friday, paring its decline this year to 3.5 percent. Sterling strengthened 1.6 percent to £0.7943 per euro, its first weekly advance in six.
A jump in the UK’s annual inflation to a higher-than-forecast 0.5 percent was overshadowed on Thursday when the IMF cut its growth forecast for the nation and warned of “severe” damage to the world economy on a Brexit. The pound briefly erased its advance before ending the day higher.
Waning expectations of an interest rate increase have also kept the UK currency weaker this year and minutes of the Bank of England’s policy decision on Thursday showed officials considered the implications of Britain leaving the EU.
Policymakers said that “referendum effects were likely to make macroeconomic and financial market indicators harder to interpret over the next few months,” stoking speculation that they would not raise borrowing costs until at least after the referendum.
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