US dollar slumps as data backs Fed rate cut view; traders on yen alert

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The U.S. dollar slid on Tuesday as a series of mixed economic data, some of which was delayed and therefore dated, reinforced expectations that the Federal Reserve will cut interest rates next month.

In afternoon trading, the euro was up 0.5% against the dollar at $1.1576, while sterling gained 0.8% to $1.3203.

The dollar index, a measure of performance against its major counterparts, fell 0.5% to 99.746 following the release of September retail sales and producer price data. It initially had been holding onto gains from last week, when the index rose nearly 1%.

"The dollar most certainly deserves to be down today as the September data released this morning proved that the end of Q3 experienced stagflation," said Juan Perez, director of trading at Monex USA in Washington.

He pointed to signs of low demand, with September retail sales rising less than expected, as well as stubborn price growth, seen in the slight rise in producer prices.

Data showed U.S. retail sales rose 0.2% in September, less than 0.4% forecast by economists polled by Reuters and slowing from an unrevised 0.6% gain in August.

Producer prices, on the other hand, increased 0.3%, in line with expectations, after an unrevised 0.1% drop in August. At the core level, however, prices inched up 0.1%, below the consensus forecast of 0.2%.

The latest U.S. consumer confidence number declined to 88.7 in November, from an upwardly revised 95.5 in October, which further hurt dollar sentiment. Economists polled by Reuters had forecast the index would edge down to 93.4 from the previously reported 94.6 in October.

"More worries about what lies ahead ... hence, putting purchases for major items on hold," wrote Jennifer Lee, senior economist at BMO, in emailed comments.

Tuesday's economic data followed dovish comments from policymakers in the past few days that helped to cement rate cut expectations.

On Monday, Fed Governor Christopher Waller said the job market was weak enough to warrant another quarter-point rate cut in December, though action beyond that depended on a flood of data that was delayed by the federal government shutdown.

Waller's comments followed similar remarks by New York Fed President John Williams on Friday. 

Traders are now pricing in an 83% chance of a cut next month, up from 50% a week earlier, CME FedWatch showed. That huge swing underscores the challenge the market faces in pricing in near-term rates in the absence of economic data, caused by the longest-ever U.S. government shutdown which ended on November 14.

In other currency pairs, the yen, which has been on the defensive since hitting 10-month lows last week, firmed on Tuesday to 155.99 per dollar, leaving the dollar down 0.6% against the Japanese currency.

Investors have been waiting for any signs of official buying from Tokyo to support its currency, which has weakened by nearly 10 yen since the start of October after fiscal dove Sanae Takaichi took over as Japan's prime minister.

Francesco Pesole, currency analyst at ING, said thinner liquidity around the U.S. Thanksgiving holiday later this week could present favorable conditions for Bank of Japan intervention in dollar/yen, ideally after a market-driven correction in the pair.

Elsewhere, the dollar fell 0.3% against the Chinese yuan to 7.0829 in the offshore market while the New Zealand dollar rose 0.2% to US$0.5623, after sliding more than 2% this month ahead of an expected rate cut by the Reserve Bank of New Zealand on Wednesday. 

In cryptocurrencies, bitcoin remained under pressure, falling 1.9% to $87,098.02. It is down nearly 20% this month.

Currency              

bid

prices at

25

November​

08:24

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 99.758 100.2 -0.43% -8.05% 100.26 99.6

index 55

Euro/Doll 1.1571 1.1521 0.44% 11.77% $1.1586 $1.1

ar 512

Dollar/Ye 156.04 156.765 -0.56% -0.93% 156.94 155.

n 885

Euro/Yen 180.56​ 180.76 -0.11% 10.62% 180.85 180.

11

Dollar/Sw 0.8071 0.8082 -0.17% -11.09% 0.8102 0.80

iss 59

Sterling/ 1.319 1.3104 0.71% 5.51% $1.3214 $1.3

Dollar 096​

Dollar/Ca 1.4096 1.4107 -0.07% -1.97% 1.4125 1.40

nadian 9

Aussie/Do 0.647 0.6464 0.13% 4.6% $0.6476 $0.6

llar 436

Euro/Swis 0.9338 0.931 0.3% -0.56% 0.9351 0.93

s 13

Euro/Ster 0.8772 0.8789 -0.19% 6.03% 0.8798 0.87

ling 66

NZ 0.5621 0.5611 0.21% 0.49% $0.5628 0.55

Dollar/Do 92

llar

Dollar/No 10.2252​ 10.2196 0.05% -10.03% 10.2742 10.2

rway 13

Euro/Norw 11.8312 11.7894 0.36% 0.53% 11.8606 11.7

ay 78

Dollar/Sw 9.5276 9.5441 -0.17% -13.52% 9.5984 9.51

eden 71

Euro/Swed 11.0255 10.9964 0.26% -3.85% 11.063 11.0

en 01

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Ozan Ergenay in London and Ankur Banerjee in Singapore; Editing by Peter Graff, Louise Heavens, Tomasz Janowski and Edmund Klamann)