The dollar tumbled on Tuesday after economic data showed the USA service sector grew at its slowest pace since early 2010, which dimmed expectations for a near-term interest rate increase from the Federal Reserve.
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The Institute for Supply Management’s non-manufacturing index slumped to 51.4, the lowest since February 2010, raising questions about the U.S. economy’s strength ahead of the Fed’s meeting later this month. A result above 50 represents growth.
The dollar index dropped 1 percent to 94.821, its lowest since August 26. The underlying United States equity benchmark index added 0.3 per cent on Tuesday as it resumed trading following Monday’s Labor Day holiday, while the Nasdaq gained 0.5 per cent.
The euro meanwhile lost territory to the pound and the yen, falling slightly to 83.75 pence, down from 83.79, and buying 114.81 yen, down from 115.30.
Given the strength in the service sector has been making up for softness in the manufacturing in the past year or so, the data was a blow to the case for the Fed to raise interest rates as soon as this month.
It was yet another contradictory indication in the complex picture of the U.S. economy considered by policymakers in Washington.
GBP/USD rose 0.20% to 1.3332, close to the previous session’s one-and-a-half month high of 1.3379.
The service sector makes up more than two-thirds of the USA economy.
The Australian dollar AUD= jumped 1.3 percent against the greenback, bolstered in part by the Reserve Bank of Australia’s decision to leave interest rates unchanged at 1.5 percent. The kiwi was boosted by the weak USA data and a rise in milk prices after a strong dairy auction in New Zealand.
USD/JPY slipped 0.10% to 103.33, while USD/CHF was little changed at 0.9801. That missed expectations for an increase of 1.4 percent following the 1.1 percent decline in July.
The dollar index.DXY dropped 1 percent to 94.821, its lowest since August 26.
US bond yields fell, with policy-sensitive two-year notes yield US2YT=RR falling to 0.730 percent, its lowest since August 19, down from 0.853 percent marked on August 29.
USA interest rate futures price gained to indicate only about 15 per cent chance of a rate hike this month and just over 50 per cent even by December, compared to above 20 and 60 per cent, respectively, before the data were released.
The British pound rose by 1 percent against the dollar, touching a fresh seven-week high at $1.3443.
Prices were up 1.73 percent at $1,349.29 per ounce by 2:20 p.m. EDT (1820 GMT).
The New Zealand dollar rose 1.5 percent against its US counterpart to its highest since May 2015.
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Global benchmark Brent crude fell nearly 1 percent on Tuesday as hopes waned for an agreement between two of the biggest oil producers to freeze output to tackle a global supply glut. Factory orders grew 0.2 percent in July from June, when they fell by a revised 0.3 percent, Destatis reported Tuesday. US crude did not settle on Monday due to the Labor Day holiday.
