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Dollar Falls on Unexpectedly Weak  Service Industries

Posted by Joseph Trevisani on Sep 6, 2016 6:14:45 PM

The dollar fell the most in five weeks after the ISM report on the U.S. service sector revealed a sharp drop in activity in August, reversing the rising expectation for a rate hike at this month's Federal Reserve meeting on the 21st.  This followed last week's ISM reading on manufacturing industries which charted the first contraction since  February.

The Dollar Index closed at 94.843, off 1 percent on the day, its biggest drop in five weeks and its lowest closed since August 26th.  The dollar also fell against most of its major counterparts, including the euro, yen and Australian Dollar.  The Institute for Supply Management said its non-manufacturing index plunged to 51.4 last month from 55.5 for the lowest score since February.

The U.S. currrency has fallen 5.1 percent this year as diminishing expectation that the Fed will be able to raise rates have  undercut bets that the U.S. central banks policies will  continue to diverge from the world's other major central banks, all of whom are increasing monetary accomodation. 

The odds of a Fed Funds hike at the FOMC meeting on September 21st fell to 22 percent today from 34 percent last week and 49 percent in May. The chance of a December increase slipped to 51 percent from 59 percent.


Charts: Bloomberg






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