MW: Dollar set to weaken for 2nd day as rate-hike doubts grow
The dollar was on track Thursday to log its second straight daily drop as underlying weakness in durable-goods data released earlier this morning caused investors to second-guess the likelihood of a summer interest-rate hike.
The ICE U.S. Dollar index DXY, -0.37% a measure of the dollar’s strength against a basket of six rivals, was down 0.3% at 95.0420.
The euro EURUSD, +0.3496% strengthened to $1.1192 in recent trade, compared with $1.1150 late Wednesday. The dollar USDJPY, -0.53% dropped to ÂĄ109.61, compared with ÂĄ110.21.
Orders for durable-goods jumped 3.4% in April, fueled by higher demand for new cars, trucks and commercial jets. But while the headline number was strong, orders for core capital goods — viewed as a proxy for business investment — declined 0.8%. That measure has now declined for five of the past six months.
While the monthly durable-goods number is known to be volatile, it plays an important role in driving economic growth. And with investors eyeing data to try and determine whether the Fed will raise rates this summer, every report has taken on an increased importance, said Adam Cole, head of G-10 currency strategy at RBC Capital Markets.
“Every incremental report that comes in weaker than expected can cast a little doubt on the Fed outlook,” Cole said.
Yellen will speak with Harvard Professor Gregory Mankiw after receiving an award from the University’s Radcliffe Institute for Advanced Study. Even if she says nothing about the Fed’s outlook, her silence could be telling.
After falling precipitously at the start of the year, the dollar has rallied over the past few weeks as a spate of Fed officials have warned that the central bank was still open to raising interest rates two or three times this year—more hikes than interest-rate markets were pricing in.
Minutes from the Fed’s April meeting, released last week, showed a majority of the Fed’s interest-rate setting committee would favor hiking rates in June if economic data remains robust, which further boosted the dollar.
Jerome Powell, a member of the Fed’s board of governor’s, is expected to speak at 12:15 a.m. Eastern. Citigroup’s Steve Englander said Powell is known as a centrist, so any remark in favor of a summer rate hike could boost the dollar.
Some market strategists blamed the pause in the dollar rally on U.S. yields’ TMUBMUSD10Y, -1.26% TMUBMUSD02Y, -3.41% inability to climb higher.
Other data released Thursday had a more positive tone. Jobless claims dropped by 10,000 to 268,000 in the period stretching from May 15 to May 21, representing a one-month low.
Pending-home sales surged to a 10-year high in April, adding more support to the notion that the U.S. housing market has entered a new phase of expansion.
Elsewhere, market strategists were focused on the pound, after a second reading on U.K. first-quarter GDP included a slight downward revision in year-over-year growth.
“The UK GDP data matched the estimate but the concerns were in the business investment part of the equation which clearly shows the impact of Brexit fear,” said Naeem Aslam, chief market analyst at Think Forex, in a note to clients.
The pound GBPUSD, -0.0068% traded at $1.4694, down slightly from $1.4697 late Wednesday.
The WSJ Dollar Index BUXX, -0.30% a measure of the dollar against a basket of major currencies, was down 0.2% at 87.43.
