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US$ hits 3-month lows on US rate cut bets

New York

THE dollar fell on Friday to three-month lows against a basket of currencies on bets that the Federal Reserve would start lowering interest rates, while the yen rose to a five-month high versus the dollar on growing tensions between Iran and the United States.

The greenback's weakness propelled the euro to three-month highs. The single currency was also buoyed by stronger-than-forecast survey data on French and German business activity.

The dollar extended its losses for three straight sessions since the Federal Reserve on Wednesday signalled that it was prepared to lower interest rates later this year.

The Fed and the European Central Bank last week hinted they were open to ease policies to counter a global economic slowdown, exacerbated by global trade tensions. "Now it's going to be a horse-race between the Fed and ECB on policy easing," said Ed Al-Hussainy, senior rates and currency analyst at Columbia Threadneedle Investments in Minneapolis.

The focus now shifts to whether Washington and Beijing can resolve their trade dispute at a summit in Japan next week of leaders from the Group of 20 leading world economies.

US President Donald Trump and Chinese President Xi Jinping are due to meet at the G-20, but analysts say chances of a decisive breakthrough are low.

The greenback was 0.67 per cent lower at US$1.1368 per euro after touching US$1.1334, the lowest since March 22.

Against a basket of currencies, the dollar was 0.42 per cent lower at 96.219 after hitting 96.204, the lowest since March 21.

The dollar enjoyed a brief respite on news of stronger-than-forecast sales in US existing homes in May. The encouraging news offset IHS Markit data that showed manufacturing growth weakened to its most sluggish level since September 2009 in June, while services sector activity slumped to its lowest level since February 2016.

Friday's US data did not change traders' expectations that the Fed would lower key lending rates, as early as July. They priced in the probability that policymakers will have reduced rates by at least 75 basis points by year-end, based on calculations by CME Group's FedWatch tool on its interest rates futures.

The yen moved to 107.045 per dollar during Asian trading, which was its strongest level since Jan 3. It was last down 0.08 per cent at 107.4 yen per dollar. REUTERS