The U.S. dollar fell against most currencies on Thursday, pressured by weak data in the world’s largest economy that supports expectations that the Federal Reserve will begin cutting interest rates this year.
The yen rose from a 38-year low against the greenback following the U.S. data, though traders remained on high alert for any hint of Japanese intervention to shore up the currency.
In the United States, applications for state unemployment benefits fell to 233,000 in the week ending June 22. However, the number of people receiving benefits after an initial week of aid rose by 18,000 to 1.839 million during the week ending June 15.
At the same time, new orders for key U.S.-made capital goods unexpectedly fell in May, suggesting business spending on equipment weakened in the second quarter.
Orders for non-defense capital goods excluding aircraft fell 0.6% last month, the data showed. Economists polled by Reuters had forecast core capital goods orders would rise 0.1%.
Other data showed that economic growth moderated sharply in the first quarter. Gross domestic product rose at a slightly upwardly revised annualized rate of 1.4% last quarter, but below the 3.4% recorded in the final three months of 2023.
The GDP report also showed weak consumer spending. US consumption growth was revised down to 1.5%, from the previous estimate of 2%.
“It seems that markets are focusing more on the failure of personal consumption than anything else, which would definitely be a sign of a slowdown in the US economy,” said Helen Given, a currency trader at Monex USA in Washington.
“Q1 GDP below red-hot readings is to be expected, but a consumption drop of this kind shows that a further slowdown could be on the horizon.”
WOES OF THE YEN
In afternoon trading, the yen was up slightly against the dollar at 160.765 per dollar, having fallen to a low of 160.88 on Wednesday, its weakest level since December 1986.
The Japanese currency has fallen about 2.1% this month and 12% so far this year against a resilient dollar, as it continues to be hit by wide interest rate differentials between the US and Japan. . That has encouraged investors to use the yen as a financing currency for carry trades.
In a carry trade, an investor borrows in a low-interest currency and invests the proceeds in higher-yielding assets.
Still, the yen’s latest slide above the key 160 per dollar level has kept traders nervous about possible intervention from Tokyo, after authorities spent 9.79 trillion yen ($60.94 billion) in late April and early May to boost the yen 5% from its then 34-year low of 160.245.
According to analysts, although the risk of intervention has increased, Japanese authorities could be waiting for the publication on Friday of the United States personal consumption expenditure (PCE) price index before entering the market. Still, any intervention would likely have a limited effect, they said.
“The Bank of Japan is expected to act on Friday, but at best… there would be a significant slowdown in US inflation that would further support calls for a Fed rate cut this year,” said Michael Boutros, senior currency analyst at Forex.com.
Elsewhere, the pound rose 0.2% to $1.2643, while the euro rose 0.2% to $1.0704.
The euro is on track to lose about 1.4% this month, weighed down by political turmoil in the euro zone ahead of French snap elections that begin this weekend.
The dollar index fell 0.1 percent to 105.91, not far from Wednesday’s near two-month high of 106.13.
However, overall losses for the US currency were limited by comments from Atlanta Fed President Raphael Bostic, one of the Federal Open Market Committee (FOMC) voters this year.
In an essay published Thursday, Bostic said that, as things stand, “I continue to believe that conditions will likely require a federal funding rate cut in the fourth quarter of this year.”
On another note, Wednesday was the last day investors could trade currencies during the quarter, as spot currency settlement takes two business days.
Trading in US stocks moved to a shorter settlement cycle last month, known as T+1.
