Dollar softens as auto sales disappoint
Published: April 3, 2017 at 4:14 p.m. ET
Joseph Adinolfi
Rachel Koning Beals
Australian dollar falls after weak retail-sales report
BUXX
The dollar weakened modestly against its main rivals Monday, the first trading day of the quarter, as U.S. car manufacturers saw sales decelerate last month to their slowest pace since August.
Ford Motor Co. F, +1.02% and a host of other auto companies reported that car sales slumped last month. Those figures, combined with hints of weakness in the manufacturing sector, weighed on the dollar after both the Markit manufacturing PMI and Institute for Supply Management's manufacturing gauge edged lower in March.
However, Eric Theoret, a currency strategist at Scotiabank, said the details of the ISM report concerning employment, price inflation and export orders more than offset the apparent weakness in the headline number.
The data "are still very constructive for the Fed's tightening narrative," Theoret said.
Federal Reserve policy makers raised interest rates in March for the third time since the financial crisis. Investors now widely expect the central bank will raise rates at least twice more before the end of the year. Expectations of higher interest rates tend to cause a currency to strengthen, though the U.S. dollar has weakened broadly since the beginning of the year, erasing some of its postelection rally.
After the data was released, the dollar USDJPY, -0.37% retreated to ¥110.25 late Monday in New York, compared with ¥111.39 late Friday in New York.
The ICE U.S. Dollar Index DXY, +0.05%, a measure of the greenback's strength against a basket of six rivals, rose 0.2% to 100.56. Last week, the index notched its first weekly rise since the period ended March 3, according to FactSet data. But despite these gains, it lost 0.9% in March and 1.7% over the first quarter, eroding some of the previous quarter's 7.1% rally.
The WSJ Dollar Index BUXX, +0.03%, which measures the U.S. currency against 16 currencies, was flat at 90.38.
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The U.S. dollar rose last week with support from remarks by various Federal Reserve officials. Chicago Fed President Charles Evans said he favors further interest-rate hikes this year, while Boston Fed President Eric Rosengren said the central bank should raise rates three more times in 2017. Investors heard from New York Fed President William Dudley on Monday, but he didn't comment on monetary policy.
The euro EURUSD, -0.19% , meanwhile, strengthened to $1.0667 late Monday in New York, compared with $1.0657 late Friday in New York, steadying after falling sharply last week following reports that some European Central Bank policy makers oppose changing its policy outlook.
Elsewhere in Europe, the pound GBPUSD, -0.26% fell to $1.2477, compared with $1.2548 late Friday in New York, after a tepid reading on U.K. manufacturing activity that stoked anxieties about the state of the country's economy.
Monday's decline aside, the resilience demonstrated by sterling in recent weeks suggests that further downside for the currency is limited, said Sam Lynton-Brown, a currency strategist at BNP Paribas. Last week, U.K. Prime Minister Theresa May invoked Article 50 of the Lisbon Treaty, formally beginning negotiations over the U.K.'s exit from the European Union.
"The dynamics we've seen in the past week signals that the market is already pricing in a disorderly hard Brexit scenario," Lynton-Brown said, referring to an outcome where the U.K. is largely stripped of its preferential access to the European single market and financial system.
In other trading, the Australian dollar weakened after a disappointing reading on retail sales. Investors will be keeping a close eye on the currency as the Reserve Bank of Australia prepares to deliver its latest interest-rate decision, expected Monday afternoon in New York. The Aussie traded at AUDUSD, +0.01% 76.05 U.S. cents late Monday in New York, compared with 76.29 U.S. cents late Friday in New York.
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Joseph Adinolfi is a markets reporter at MarketWatch.
Rachel Koning Beals is a MarketWatch news editor in Chicago.