June 1 (Reuters) – The dollar was headed for its worst daily loss in nearly a month on Thursday as US manufacturing data and comments from Federal Reserve officials bolstered expectations that the Federal Reserve is likely to skip a rate hike at its upcoming meeting .
The euro recovered from a two-month low on Thursday after European Central Bank (ECB) President Christine Lagarde said further policy tightening was necessary.
The dollar index, which measures the currency against a basket of six counterparts, fell 0.547% to 103.580, from a two-month high of 104.7 reached Wednesday as investors dropped bets that the Fed would raise interest rates this month. will increase.
Fed officials pointed to a rate hike “skip” at the June 13-14 meeting, giving the central bank time to assess the impact of its tightening cycle so far against still-strong inflation numbers.
Markets are pricing in about a 32% chance that the Fed will raise rates by 25 basis points at the June meeting, compared to a nearly 67% chance a day ago, according to the CME FedWatch tool.
“I think the market expects the dollar to still be in a position where it will struggle against higher yielding currencies,” said Edward Moya, senior market analyst at OANDA.
The US central bankers should not raise rates at their next meeting, Philadelphia Federal Reserve President Patrick Harker said Thursday, even though high inflation is decreasing at a “disappointingly slow” pace.
A readout of US private payrolls on Thursday showed that the number of jobs increased more than expected, which could lead the Fed to keep rates high for some time. Private payrolls rose by 278,000 jobs last month, according to ADP.
US manufacturing contracted for a seventh straight month in May as new orders continued to fall amid higher interest rates, but factories pushed employment to a nine-month high.
The Institute for Supply Management (ISM) said Thursday that the manufacturing PMI fell from 47.1 in April to 46.9 last month.
ECB HAS ‘GROUND TO COVER’
The euro last rose 0.64% to $1.0757, coming off a two-month low of $1.0635 on Wednesday after some European countries released national inflation data showing signs that price pressures have eased.
While data on Thursday showed inflation in the 20 countries that share the euro fell from 7.0% in April to 6.1% in May, lower than expected at 6.3% in a poll of economists by Reuters , the current level is more than three times the ECB’s 2%. inflation target.
“We made it clear that we still have some ground to cover in bringing interest rates to sufficiently restrictive levels,” Lagarde said in a speech.
Money markets count an 85% chance of a 25 basis point hike when the ECB meets on June 15. According to Refinitiv, another increase of 25 basis points is expected in July.
“The euro is moving up a bit,” said John Velis, FX and macro strategist at BNY Mellon. “There’s sort of a narrowing interest rate differential…when the ECB is expected to raise one or two more times and the Fed is more doubtful about that.”
Elsewhere, the pound last traded at $1.2524, up 0.67% on the day, while the Australian dollar rose 0.98% against the greenback at $0.657.
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Currency bid prices at 3:42 PM (1942 GMT)
Reporting by Hannah Lang in Washington; Additional reporting by Joice Alves in London and Rae Wee in Singapore; Edited by Andrew Heavens, Will Dunham, Mark Potter and Leslie Adler