Currencies: Dollar dragged lower as U.S. data disappoints

NEW YORK (MarketWatch)—The dollar lost a little ground Wednesday, hurt by weaker-than-expected readings on the U.S. economy.

The ICE dollar index DXY, +0.00% which tracks the buck against its major rivals, fell nearly 0.2%.

The euro advanced to $ 1.0763 from $ 1.0732 late Tuesday, getting a boost from better-than-expected European manufacturing data.

The greenback slipped against the yen, trading at ¥119.69 from ¥120.14 late Tuesday in New York, after going on a roller-coaster ride against the Japanese currency earlier Wednesday. The dollar fell to as low as ¥119.42 after a lackluster reading from the Bank of Japan’s corporate-sentiment survey prompted haven buying of the yen. This was also cited as one of the reasons U.S. stock futures plunged during Asian trading hours.

What a rampaging dollar means for stocks

Despite expectations that the weak yen would improve their mood, the BOJ tankan survey showed the main index measuring sentiment among big manufacturers was unchanged at plus-12 from the December poll. Economists surveyed by The Wall Street Journal and the Nikkei had expected a reading of plus-14.

The dollar briefly recouped its losses, but then drifted back into the red against its rivals, as disappointing U.S. economic data weighed. ADP’s report on private-sector employment fell short of expectations, and a manufacturing gauge missed forecasts. The ADP release potentially doesn’t bode well for the monthly U.S. jobs report that’s due Friday.

“If labor numbers now begin to turn lower as well, the positive dollar momentum could evaporate in an instant,” said BK Asset Management’s Boris Schlossberg in a note early Wednesday. The dollar has rallied for months as investors anticipate a strengthening U.S. economy will enable the Federal Reserve to raise interest rates, but the greenback also has pulled back somewhat in late March.

Read more: Fed’s Lacker sees ‘strong’ case for June rate hike

Upcoming holidays also had an impact on trading on Wednesday, “as liquidity begins to slip away from the foreign-exchange market, not to return until April 7,” analysts at BBH said in a note. The U.S. stock market will be closed on Good Friday, and exchanges in Europe are set to remain closed on Easter Monday as well.

In U.K. economic news, manufacturing activity rose in March, but it wasn’t enough to send the pound higher. Sterling GBPUSD, +0.05%  exchanged hands at $ 1.4819, roughly were it was late Tuesday.

“The U.K. election is the biggest hurdle for the pound, and as long as the threat of the U.K. leaving the EU remains on the table, the upside is very limited for the currency,” said Naeem Aslam, chief market analyst at AvaTrade in a note.

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