The US dollar dropped for a second week as data on the world’s largest economy persistently trailed forecasts, raising questions about whether the US Federal Reserve will have scope to raise interest rates this year.
The greenback fell against most of its major peers as orders of durable goods, manufacturing, and new home sales all came in weaker-than-projected.
Fed officials are to decide on monetary policy on Wednesday, the same day a report is projected to show first-quarter economic growth slowed.
“The dollar will go through a period of consolidation,” New York-based Mizuho Bank Ltd strategist Sireen Harajli said. “The fact that US data has been coming in on the softer side confirms the expectation that first-quarter growth is supposed to be very weak.”
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, slipped 0.4 percent this week to 1,180.61 in New York. The index has gained 4.4 percent this year, after increasing 11 percent last year.
The dollar declined 0.6 percent this week to US$1.0873 per euro and fell 0.5 percent to ￥118.99.
Net bullish bets for the dollar to strengthen against eight major counterparts by hedge funds and money managers fell to the least since October last year, according to US Commodity Futures Trading Commission data.
Futures positions betting on a stronger greenback were at 324,940 contracts as of Tuesday.
An index of US economic surprises, which measures data relative to economists’ projections, reached the lowest level since the recession six years ago.
GNP expanded at a 1 percent annual rate in the first quarter, down from the prior 2.2 percent in the fourth quarter, according to a Bloomberg survey of economists.
The Federal Open Market Committee was split at its meeting last month on when to begin raising rates, which have been held in a range of zero to 0.25 percent since 2008 to support the economy.
Optimism on political and economic stability overseas also contributed to weakness in the dollar this week. The greenback fell against the euro for a second week amid pledges from officials that Greece is not leaving the eurozone, and that no contingency plan is being prepared for the failure of negotiations with the nation’s anti-austerity government. Greece has to pay interest of about 201 million euros (US$217 million) on its IMF loans due early next month.
Both sides will probably reach a deal “because the cost of a Greek resolution is relatively modest and the price of no Greek resolution is so catastrophically high,” New York-based Oppenheimer Funds Inc Krishna Memani chief investment officer said by telephone.
The dollar also slipped to a seven-week low against the pound as the latest poll shows neither the Conservative nor Labour parties will win majority in Parliament next month. That is consistent with market expectations and previous polls.
The pound climbed to its highest level in seven weeks against the dollar as investors speculated that whatever the outcome of the UK election, it will not derail the Bank of England’s path toward raising interest rates.
The pound climbed 1.4 percent this week to US$1.5172 as of 5pm on Friday, when it reached US$1.5186, the highest since March 6. Sterling appreciated for a third week versus the euro, gaining 0.8 percent to ￡0.7165.
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