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Dollar drops amid tepid US economic reports

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The dollar fell on Tuesday as the market viewed recent lackluster US economic data as delaying the Federal Reserve's plan to raise near-zero interest rates.

[NEW YORK] The dollar fell on Tuesday as the market viewed recent lackluster US economic data as delaying the Federal Reserve's plan to raise near-zero interest rates.

Last Friday's April jobs report was solid but showed no sign of rising wages, an indicator that Fed Chair Janet Yellen has focused on for signs of labor market tightening.

Manufacturing has been stuck in the doldrums and the trade deficit jumped to a six-year high in March, likely pushing the economy into contraction in the first quarter. The first estimate had put gross domestic product growth at a weak 0.2 per cent annual rate.

"The recent run of softish US data has left the dollar with a substantially weakened narrative on the Fed's course to tightening," XE.com said in a research note.

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The Fed had repeatedly suggested the rate liftoff could come around mid-2015, but the data generally has pushed back expectations to at least September.

"We expect the greenback to eventually resume its strengthening trend as US economic data improve and the Fed moves closer to normalizing the stance of monetary policy," said Nick Bennenbroek, head of currency strategy at Wells Fargo Securities.

Investors will be looking to see if the second quarter is showing signs of life in Wednesday's retail sales report for April, a key indicator of consumer spending.

The euro, meanwhile, benefited from struggling Greece's debt payment of 750 million euros (S$1.12 billion) to the International Monetary Fund on Tuesday, analysts said.

"The news added to the euro's buoyant tone, even if Greece is on the verge of bankruptcy and will likely have to default on its debts if a new loan deal is not reached very soon," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

AFP

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