TOKYO, Oct 4 — The US dollar stepped back today after a soft US service sector survey stoked worries that pressure from US trade disputes with China and other countries could spill over into the broader US economy and tip it into a recession.
The US dollar index fell to 98.905, shedding about 0.8 per cent after hitting 2 1/2-year high this week.
Against the yen, the US currency eased to 106.91 yen, having fallen to one-month low of 106.48 in US trade yesterday.
The euro stood at US$1.0972, extending its recovery from a near 2 1/2-year low of US$1.0879 set on Tuesday.
The survey from the US Institute for Supply Management (ISM) showed its non-manufacturing activity index falling to 52.6 in September, the lowest since August 2016, and far below expectations of 55.1, from 56.4 in August.
Coming on the heels of a similar survey on manufacturing, announced yesterday, showing activity plunging to a more than 10-year low, the weak data increased fears of a US recession.
A gauge of employment in the survey fell to 50.4 last month, the lowest reading since February 2014, from 53.1 in August.
That does not bode well for the upcoming all-important US jobs data today, said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank, noting the employment component in the ISM has had a meaningful correlation with the payrolls data.
“It is reasonable to think the non-farm payrolls figure is more likely than not to come on the disappointing side. It could even fall below zero,” he said.
The median economists forecast polled by Reuters is a rise of 145,000 in September.
Heightened worries about the US service sector increased expectations that the US Federal Reserve will cut interest rates at the end of this month, undermining the dollar's yield advantage.
Fed funds rate futures are almost fully pricing in a 25 basis point rate cut and a high chance of another cut by December.
But some market players think rate cuts are far from a done deal.
“Opinions in markets over whether the Fed needs to cut rates that much are divided. The dollar is not going to fall sharply given not everyone thinks the Fed will cut rates this month,” said Kazushige Kaida, forex manager at State Street.
Elsewhere, sterling traded at US$1.2333, having risen to one-week high of US$1.2413 yesterday after the head of a group of eurosceptic lawmakers in Prime Minister Boris Johnson's Conservative Party said the government's latest Brexit proposals offered the possibility of a “tolerable deal.”
Still, traders remained unsure whether Johnson's proposal to replace the Irish border “backstop” was going to morph into a final Brexit divorce agreement due to mixed messages coming from both sides. — Reuters
