By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The dollar fell to a three-week low on Monday after data showed the U.S. economy is gradually slowing with weaker-than-expected manufacturing and construction spending data, suggesting the Federal Reserve is on track is to start with. interest rate cuts later this year.
The , a measure of the value of the U.S. currency against six major currencies, fell 0.4% to 104.14. The index earlier fell to 104.13, the lowest level since mid-May.
The dollar also fell to a two-week low against the yen after the data and was last down 0.7% at 156.22.
The euro gained 0.5% against the dollar to $1.0897, after earlier rising to a three-week high of $1.0898.
Monday’s data showed the US Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) fell to 48.7 in May from 49.2 in April, also falling from an 18-month high of 50.3 in March.
In a research note, BMO points out that the U.S. manufacturing sector has shrunk in 18 of the past 19 months.
Monday’s ISM decline followed weakness in the Chicago PMI, Dallas Fed, Philadelphia Fed and Empire State manufacturing indexes.
US construction spending also fell unexpectedly for the second month in a row in April, falling 0.1% after a 0.2% decline in March, due to a decline in non-residential activity.
“Investors and markets are starting to believe that the theme of American exceptionalism is starting to wane,” said Boris Kovacevic, global macro strategist at global payments firm Convera in Vienna, Austria, referring to the outperformance of the world’s largest economy versus the rest of the world.
“It’s not quite over yet, but markets are now wondering how long the American exceptionalism theme will last,” he added.
Following the ISM and construction spending data, Fed Funds futures increased the probability of a September rate cut to about 59.1%, according to LSEG’s rate probability app, up from about 55% late Friday. Earlier last week this was just under 50%.
The US dollar recorded its first monthly decline of the year in May, pressured by shifting expectations about when the US central bank will cut interest rates and by how much. The futures market has fully priced in a 25 basis points (bps) interest rate cut this year.
In the eurozone, however, the European Central Bank is holding a meeting on Thursday and it is believed that interest rates will almost certainly be cut.
ECB officials’ comments will be of interest to traders, along with economic projections, as they assess whether the central bank will implement further cuts after Thursday in the wake of data pointing to a rise in euro zone inflation in May.
The markets are expecting an ECB cut of 57 basis points this year.
In other currencies, sterling rose 0.4% against the dollar to $1.2799, boosted by the dollar’s decline on US manufacturing data.
The pound fell slightly after Nigel Farage, who helped lead Britain’s departure from the European Union, said he would stand as a candidate in next month’s election and lead the right-wing Reform Party. This is widely seen as a major blow to Prime Minister Rishi Sunak.
In Mexico, the peso weakened on Monday after the ruling party declared Claudia Sheinbaum the winner of the presidential election by a “large margin” after polls closed on Sunday.
“The peso is underperforming amid apparent growing concerns among investors that by securing a supermajority in the lower house, the governing coalition could be tempted to implement non-market-friendly policies,” said Piotr Matys, senior FX analyst at In Touch Capital Markets.
The U.S. dollar last rose 4.1% against the Mexican currency at 17.704 pesos, after previously hitting its highest level since mid-April.
The Indian rupee, meanwhile, rose to a 2.5-month high against the dollar and was last trading 0.4% higher at 83.08 per dollar after exit polls pointed to a significant mandate and a rare third term for prime minister Narendra Modi.
Currency
bid
prices at
June 3
07:03
pm GMT
Description RIC Last US Pct YTD Pct High Low
change bid at Close
Last
Session
Dollar 104.11 104.58 -0.43% 2.70% 104.77 104.
index 12
Euro/pop 1.0898 1.0847 0.47% -1.27% $1.0899 $1.0
ar 828
Dollar/Year 156.22 157.225 -0.64% 10.76% 157.455 155.
n95
Euro/yen 1.0898 170.61 -0.22% 9.39% 170.89 169.
72
Dollar/SW 0.8956 0.9026 -0.77% 6.42% 0.9035 0.89
iss 51
Sterling/ 1.2797 1.2743 0.44% 0.58% $1.2799 $1.0
Dollars 828
Dollar/Approx 1.3641 1.3628 0.11% 2.92% 1.3668 1.36
nadia 04
Australia/Thurs 0.6676 0.6653 0.36% -2.07% $0.6695 $0.6
lar 633
Euro/Swiss 0.9758 0.9789 -0.32% 5.08% 0.9801 0.97
s 43
Euro/Star 0.8514 0.8514 0.07% -1.78% 0.8535 0.85
ling 1
New Zealand 0.6178 0.6145 0.55% -2.22% $0.6189 0.61
Dollar/Do 35
llar
Dollar/No 10.467 10.4669 -0.14% 3.27% 10.5251 10.4
track 625
Euro/Norwegian 11.408 11.3728 0.29% 1.64% 11.4165 11.3
yes 644
Dollar/SW 10.4049 10.5143 -1.01% 3.36% 10.5351 10.4
Eden 05
Euro/Sweden 11.3392 11.4124 -0.64% 1.92% 11.4318 11.3
en 249
