FOREX-Dollar slides as data on private sector activity falls short of expectations

By John McCrank

NEW YORK, August 23 (Reuters)The dollar fell to a new two-decade high against the euro on Tuesday after data showed US private sector activity weaker than expected. in August, prompting bets that the Federal Reserve could be less aggressive in its rate hike cycle.

Against a basket of six major currencies, the dollar index =USD was down 0.376% at 108.58 at 3:30 p.m. Eastern Time (1930 GMT). index earlier hit 109.27, its highest level since hitting a two-decade high in mid-July.

The S&P Global Flash Composite Purchasing Managers Index (PMI) for August fell to its lowest level since May 2020 as demand for services and manufacturing contracted for the second consecutive month amid high inflation and under stricter financial conditions.

Falling demand was exactly what the Fed was trying to achieve with its most severe series of interest rate hikes since the 1980s. The Fed raised rates from near zero in March to the current range of 2 .25% to 2.50%, with further increases expected in the coming months, as it attempts to bring inflation back from a 40-year high.

“The manufacturing and services PMI is well below expectations, raising concerns about the strength of this economy and supporting the narrative that the Fed Chairman (Jerome) Powell may be more inclined to achieve this pivot and slow the pace of the tightening,” said Ed Moya, senior market analyst at Oanda.

Traders are currently pricing in a 47.5% chance of the Fed raising interest rates by 50 basis points (bps) in September and a 52.5% chance of raising them by 75 bps. FEDWATCH

That could change when Powell speaks Friday in Jackson Hole, Wyoming, where central bankers from around the world will gather for the Fed’s annual economic symposium.

With inflation still high, Powell will likely present a fairly hawkish outlook for monetary policy that could cause traders to favor the likelihood of a 75 basis point rate hike for September more strongly, said global head Matt Weller. research at and Index of cities.

If “Powell turns out to be as hawkish as expected on Friday, traders are likely to get back on the dollar bull train sooner rather than later,” he said.

euro EUR=EBS was up 0.19% against the greenback at $0.99625, rising from a fresh two-decade low of $0.99005 hit earlier in the session on renewed fears that an energy shock will continue to unfold. fueling inflation, making it more likely that Europe will fall into recession.

PMI data showed business activity in Europe contracted less than expected in August, although the outlook was still bleak.

The single currency is down around 12% since the start of the year and lost almost 3% in August.

The Chinese yuan meanwhile weakened to a two-year low and the pound briefly touched its lowest level since March 2020.

The pound recovered ground after the PMI data and rose 0.49% against the greenback to $1.18255, after falling to $1.1718 GBP=D3 early in the day.

The Chinese Yuan CNY=CFXS fell to a nearly two-year low of 6.853 to the dollar as Beijing’s moves to ease policies aimed at reviving faltering growth and the Federal Reserve’s relentless tightening streak kept pressure on the Chinese currency .

World exchange rates

Euro tumbles to 20-year low against strong dollar

euro ransacked

(Reporting by John McCrank in New York; Additional reporting by Dhara Ranasinghe in London; Editing by Clarence Fernandez, Nick Zieminski and Josie Kao)

(([email protected] Twitter @jmccrank; 1-646-223-6643; Reuters Messaging: [email protected]))

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