US dollar slips after US data dampens Fed rate hike bets

[NEW YORK] The US dollar fell against the euro, yen, and franc on Thursday after US economic data showed weakness in business spending plans, denting expectations for a Federal Reserve interest rate increase in June or July.

The Commerce Department said orders for long-lasting US manufactured goods surged 3.4 per cent last month after increasing 1.9 per cent in March. Economists polled by Reuters had forecast durable goods orders rising only 0.5 per cent last month.

But non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 0.8 per cent after slipping 0.1 per cent in the prior month. These so-called core capital goods orders have declined for three consecutive months.

Doubts still remain about the likelihood of a June or July Fed rate increase, said Boris Schlossberg, managing director at BK Asset Management in New York.

The US dollar index, which measures the greenback against a basket of six major rivals, hit 94.938, its lowest level in eight days. The euro rose more than half a per centage point to a session high of US$1.1216, rebounding from Wednesday's 10-week low of US$1.1126.

The US dollar hit its lowest level in a week against the Swiss franc, at 0.9873 franc. The US dollar was last down 0.44 per cent at 109.70 Japanese yen after hitting a session low of 109.42 yen early in the session.

Fed funds futures contracts on Thursday implied traders saw a 26 per cent chance the US central bank would raise rates in June, down from 32 per cent on Wednesday.

"The market is scaling back some of its confidence in a June or July rate hike," said Daniel Katzive, head of FX strategy for North America at BNP Paribas in New York.

The US dollar's losses on Thursday reduced its gains since May 18, when minutes from the Fed's April policy meeting signaled the central bank had edged closer to a rate increase in the near term.

Remarks from Fed officials on Thursday and earlier this week also supported bets for a rate rise in June or July.

The US dollar index remains about 0.7 per cent higher since the release of the Fed minutes.

Investors were awaiting comments from Fed Chair Janet Yellen on Friday.

BK's Mr Schlossberg said Ms Yellen would likely take a neutral stance in order to keep the central bank's options open.

"She will be extraordinarily sensitive to not promise anything that she can't deliver," he said.

REUTERS