US dollar sinks to three-week low on signs of slowing economy
NEW YORK -The dollar fell to a three-week low on Monday after data showed the U.S. economy is gradually slowing down with weaker-than-expected readings on manufacturing and construction spending, suggesting that the Federal Reserve is on track to start cutting interest rates later this year., a measure of the U.S. currency's value against six major currencies, fell 0.4% to 104.14. The index earlier dropped to 104.13, the lowest since mid-May.
Monday's data showed the U.S. Institute for Supply Management's purchasing managers index for manufacturing fell to 48.7 in May, from 49.2 in April, sliding as well from an 18-month high of 50.3 seen in March. U.S. construction spending also slid unexpectedly for a second consecutive month in April, decreasing by 0.1% after a 0.2% decline in March, amid falls in non-residential activity.
After the ISM and construction spending data, fed funds futures increased the chances of a rate cut in September to around 59.1%, according to LSEG's rate probability app, compared with around 55% late Friday. It was slightly below 50% earlier last week. The comments from ECB officials will be in focus for traders along with economic projections as they assess whether the central bank will provide further cuts after Thursday in the wake of data showing a rise in euro zone inflation in May.In other currencies, sterling rose 0.4% against the dollar to $1.2799, boosted by the dollar's fall following the U.S. manufacturing data.
"The peso is underperforming amid seemingly growing concerns amongst investors that by securing supermajority in the lower house the governing coalition could be tempted to implement non-market-friendly policies," said Piotr Matys, senior FX analyst, at In Touch Capital Markets.
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