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Dollar Falls As Disappointing Data Eases Fed Pullback Concerns

Dollar fallsThe U.S. dollar suffered a heavy setback on Monday after disappointing manufacturing data eased concerns of the Federal Reserve scaling back its $85 billion a month bond buying program anytime soon.

Dollar falls after The Institute of Supply Management said that the U.S. PMI declined to 49 in May from 50.7 in April. That’s the lowest reading since June 2009. The dollar index fell 1% yesterday to 82.428 following the news. Though it recovered a little on Tuesday to 82.777. Europe and China also recently showed similar sluggish manufacturing data, indicating that the world economy is still ailing.

Against the yen, it slipped below 100 yen to a four-week low of 98.86. It recovered slightly on Tuesday to 99.60 amid reports that Japanese government would ask public pension funds to boost their investments in overseas assets and equities. People familiar with the matter told Reuters that Japanese prime minister Shinzo Abe will officially announce the move during his growth strategy speech on Wednesday. Japanese public pension funds have more than $2 trillion in assets.

Societe Generale forex director Kyosuke Suzuki said that traders have been waiting for the opportunity to buy on the dip. So, traders are benefitting from this opportunity. But there is further downside potential for the dollar yen as Nikkei is still highly volatile. Over the past two weeks, volatility in Japanese stock markets have pushed the yen.

Analysts say the bullish bets on the dollar are overdone in the past three weeks. Poor data such as the manufacturing PMI suggest that the fed is unlikely to taper its bond buying program. Now all eyes are set on Friday’s non-farm payrolls data. If the employment number beats the consensus of 165,000 new jobs, it can revive the upside momentum of the dollar.

Euro also gained against the dollar to $1.3068 after briefly popping above $1.3100. The single currency also strengthened against the yen from129.49 to 130.12. The Australian dollar rose 2% on Monday to $0.9792, but fell 0.6% today to $0.9711. The Aussie may drive after the Reserve Bank of Australia’s policy meeting later today. The RBA is expected to maintain its interest rate at the record low of 2.75%.

Asian stock markets regained the momentum today after falling near six month lows, but remain cautious ahead of the key U.S. jobs report. The Federal Reserve has specifically targeted jobs creation for its stimulus program.

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