By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The dollar dropped to two-week lows on Monday after data showed the U.S. manufacturing sector shrank for a fourth straight month in November and construction spending fell unexpectedly, stoking fears the world’s largest economy could slip into recession.
The greenback also dropped from six-month highs against the Japanese yen and slid to a two-week trough versus the euro.
Before the U.S. data’s release, the dollar had already weakened earlier, after U.S. President Donald Trump on Monday announced he would restore tariffs on U.S. steel and aluminum imports from Brazil and Argentina in apparent retaliation for currency weakness he said was hurting U.S. farmers.
“It’s a combination of both trade concerns and weak U.S. data,” said John Doyle, vice president of dealing and trading, at Tempus Inc in Washington, explaining Monday’s dollar move.
“The dollar was already weakening before the data, but the weakness accelerated when the manufacturing numbers came out. It didn’t help that manufacturing reports out of Europe were beating expectations and ours were awful,” he added.
Positive data from European manufacturing early Monday fueled optimism on the region’s outlook. Manufacturing figures from the UK, Germany, Spain and France all beat expectations.
In contrast, the U.S. Institute for Supply Management’s (ISM) index of national factory activity fell to 48.1 in November from 48.3 in October, down for a fourth month. The reading was below expectations of 49.2 from a Reuters poll of 57 economists.
A separate report showed U.S. construction spending in October dropped as well, falling 0.8% as investment in private projects tumbled to the lowest level in three years.
“What this means for the dollar is that we could potentially see another rate cut from the Federal Reserve next year,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
The Fed has cut interest rates three times this year and at its last monetary policy meeting it signaled it would be data-dependent going forward.
In afternoon trading, the dollar index <.DXY> was last down 0.4% at 97.839 after dropping to 97.811, a two-week low.
The drop in the dollar index pushed the euro to a two-week high. It was last up 0.6% at $1.1081
The dollar fell 0.4% to 108.98 yen
Graphic: World FX rates in 2019 – http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/…
Earlier in the session the greenback gained against the yen after an unexpected rebound in Chinese manufacturing activity lifted hopes for a brighter outlook for world growth.
Chinese factory activity expanded at the quickest pace in almost three years in November, a private business survey showed on Monday, following upbeat official data over the weekend.
Graphic: New Zealand dollar – https://fingfx.thomsonreuters.com/gfx/mkt/12/9380/9292/NZ0212.png
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler and Richard Chang)