The US dollar tumbled the most in almost two months after a report showed US economic growth fell short of expectations in the second quarter, damping speculation the US Federal Reserve will raise interest rates this year.
The greenback fell against all 16 major currencies tracked by Bloomberg after the US Department of Commerce said GDP rose at a 1.2 percent annualized rate in the April-June period, less than half the 2.5 percent median forecast of economists surveyed by Bloomberg.
Fed officials said after their policy meeting this week that “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”
The dollar had been strengthening this month as traders boosted bets that the Fed would raise rates in the coming months after stronger-than-expected data on jobs, retail sales and industrial production.
They will now turn their attention to non-farm payrolls data set to be released on Aug. 5 for clues on the pace of Fed tightening. The drop in the dollar on Friday came after less-aggressive-than-expected monetary stimulus measures from the Bank of Japan sent the yen surging.
“GDP growth is not weak enough to cause panic, but weak enough for the Fed not to hike,” said Arnab Nilim, a money manager at AllianceBernstein LP, which manages US$490 billion in assets. “If non-farm payrolls are stronger, the dollar can come back. Until then, the dollar will be range bound.”
The dollar dropped 0.9 percent to US$1.1174 per euro as of 5pm in New York on Friday. It fell 3.1 percent to ￥102.06. The Bloomberg Dollar Spot Index tumbled by the most since June 3.
Traders are pricing in a 36 percent probability that the Fed raises rates by the end of the year, based on the assumption that the effective fed funds rate will trade at the middle of the new Fed target range after the next increase. That is down from almost 50 percent on Tuesday.
Fed policymakers gather three more times this year, with the next meeting set for Sept. 20 and Sept. 21.
The US dollar fell against the New Taiwan dollar on Friday, shedding NT$0.029 to close at NT$31.926 as traders here were encouraged by gains posted by the yen to pick up the local currency throughout the session, dealers said.
Selling in the US dollar also reflected seasonal fund demand from Taiwanese exporters, who dumped their US currency to buy the NT dollar as the month draws to a close, the dealers said.
The US dollar stayed at a low since Aug. 1 last year, when the currency closed at NT$31.76. The US currency fell 0.45 percent against the NT dollar for the week, from NT32.07 on Friday last week.
South Korea’s won posted the biggest monthly gain among Asian currencies as overseas investors boosted holdings of the nation’s stocks amid improving demand for higher-yielding assets.
The won strengthened 2.8 percent percent in July as Asia’s fourth-largest economy reported economic data and corporate earnings that beat analysts’ forecasts. The currency also rallied after the Bank of Korea refrained from cutting interest rates.
Malaysia’s ringgit has been Asia’s worst performer this month, losing 0.7 percent.
The British pound is heading for its third monthly decline as investors anticipate the Bank of England (BOE) will cut interest rates and add stimulus to stem a potential fallout from Brexit.
Sterling has weakened versus all of its 16 major peers in the past three months and remains under pressure as economic consequences of Britain’s vote last month to exit the EU begin to surface. Swaps pricing show a 100 percent chance the BOE will reduce its main interest rate from a record-low 0.5 percent, where it’s been since March 2009.
Brexit has been the main driver for the pound, according to Ned Rumpletin, the London-based European head of currency strategy at Toronto Dominion Bank. He predicts “aggressive action from the BOE” which will “fuel extended declines in the pound.”
The pound climbed 0.8 percent to US$1.3270 as of 4:28pm London time. That reduced its loss this month to 0.3 percent, after depreciating almost 9 percent in the previous two months. Sterling was little changed at ￡0.8417 per euro, putting it on course for a 0.8 percent decline this month.
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