US dollar banknotes.
Liu Jie | Xinhua via Getty
The dollar fell on Tuesday after an unexpected slowdown in US industrial production prompted investors to cut rates on the booming US economy could boost the dollar.
The data showed that due to shortages of basic materials and transportation constraints, the Institute for Supply Management’s manufacturing activity index declined 4.7 points to 64.7 points, pushing the dollar down from a three-week high in the yen and a two-week high in the euro.
As trade in Asia contracted due to holidays in Japan and China, further movements were muted, with the result that the dollar climbed slightly from overnight levels to 109.14 yen and 1.2054 dollars per euro.
The single currency gained 0.3% overnight and was further supported by higher retail sales in Germany and record manufacturing activity in the euro area.
The Australian and New Zealand dollars eased slightly on Tuesday after rebounding the day before, while the US dollar index rose 0.05% against a basket of major competitors to 91.036.
Traders are currently focusing on services data due out on Wednesday and employment data on Friday, and the markets appear to be well balanced. Some analysts say strong numbers could lift the dollar, prompting expectations of higher interest rates, while others argue that a strong US economy will put pressure on the currency as imports increase and the trade deficit widens.
“ISM’s production report fell short of expectations, but job numbers should be at least as strong as consensus expectations,” Westpac analysts said.
“The dovish core of the Fed will have none of this, but expectations for robust data from the US this week and the likely more aggressive regional forecasts from the federal government keep the dollar index in position for a more two-way price movement.”
10-year US Treasury yields fell 2.5 basis points on Monday amid a miss on the ISM and after New York Fed President John Williams reaffirmed the recovery is “not enough” to trigger a monetary tightening …
Also on the horizon are meetings of the central banks of Great Britain and Norway and the results of the policy of the Reserve Bank of Australia at 04:30 GMT.
No change is expected from the RBA, although the tone of the statement may give a hint as to whether the bank will raise its economic forecasts, which it is due to release on Friday.
The Australian dollar fell 0.1% in morning trading to $ 0.7756, while the Kiwi fell slightly lower at $ 0.7194.
Sterling traded near a weekly high in the euro and broke the 20-day moving average against the dollar overnight to $ 1.3905 as traders believe the Bank of England may announce a slowdown in buying its bonds at its meeting on Thursday.
Elsewhere, cryptocurrency ether extended its record mileage, surging to a new all-time high of $ 3,457.64 before retreating slightly.