Forex - Dollar down slightly as regional PMIs offer support for local FX

Investing.com - The dollar dipped in Asia on Friday as regional PMIs offered support for local currencies and with several markets closed in the region and to the Middle East for the the Muslim festival of Eid.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.03% to 92.56.

USD/JPY changed hands at 110.03, up 0.05%, while AUD/USD gained 0.09% to 0.7953.

In China, the Caixin manufacturing PMI for August jumped to 51.6, compared with a reading of 50.9 seen. elsewhere in the region, The AIG manufacturing index from Australia for August soared to 59.8, compared with the July reading at 56.0 and the Japan manufacturing PMI for August came in at 52.2, a dip below 52.8 expected.

Overnight, the dollar came under pressure on Thursday after data showed the pace of inflation remained subdued while weakness in the U.S. housing sector continued, curbing investor expectations of a rate hike later this year.

The dollar pared early session gains weighed by a raft of mixed economic reports, as consumer spending and housing data fell short of expectations while inflation remained well below the Federal Reserve’s target rate.

The trend of slowing sales of US homes continued in July as tight supply of housing weighed on the pace of new listings available for sale.

Pending home sales slid 0.8% in July from the previous month when they rose 1.3%, the National Association of Relators said on Thursday. That missed economists’ expectations for a 0.5% rise.

Meanwhile, consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3%, the Commerce Department said on Thursday, falling short of expectations of a 0.4% increase.

Inflation and jobs data, pointed to continuing US labor market strength while the pace of inflation remained subdued, increasing at its slowest pace in nearly two-years.

Initial claims for state unemployment benefits rose 1,000 to a seasonally adjusted 235,000 for the week ended Aug. 25, the Labor Department said. That beat economists’ forecasts of a 2,000 increase.

In the 12 months through July, the core PCE price index increased 1.4% after advancing 1.5% in June. That was the smallest year-on-year increase since December 2015.

The slew of economic reports comes ahead nonfarm payrolls data due Friday.

The tick lower in the greenback, embolden the euro to bounce off session lows, following earlier data showing eurozone inflation topped expectations.

Dollar pressured by lukewarm U.S. data as jobs report awaited

TOKYO (Reuters) - The dollar stayed off this week's lows in cautious trading on Friday as investors awaited key monthly U.S. employment data after other tepid economic data cast doubts on whether the Federal Reserve will raise interest rates again this year.

The dollar index, which tracks the greenback against a basket of six rival currencies, was flat on the day at 92.688 (DXY), poised for a slight weekly drop. It remained well above this week's 2-1/2-year low of 91.621 plumbed against a background of tensions on the Korean peninsula.

Japanese Finance Minister Taro Aso said on Friday that he was cancelling a planned trip to the United States for preparatory economic talks because of national security uncertainties posed by North Korea after it fired a missile that flew over Japan on Tuesday.

Against the yen, the dollar edged up 0.1 percent to 110.04 , up 0.6 percent for the week and well above this week's 4-1/2-month nadir of 108.265 yen.

"It's hard for investors to make decisions now, when it comes to foreign exchange rates," said Harumi Taguchi, principal economist at IHS Markit in Tokyo.

"Even if it ever looks increasingly as if the Fed is going to hike rates, there are U.S. political risks, as well as geopolitical tensions, particularly around the North Korean situation, and when these flare up, they push up the yen," she said.

The yen tends to gain in times of crisis due to expectations that Japanese investors will repatriate assets.

Also weighing on the U.S. currency were comments by Treasury Secretary Steven Mnuchin, who suggested on CNBC that a weaker dollar might have advantages for U.S. trade.

Mnuchin also said that tropical storm Harvey which ravaged Texas could bring forward the deadline by which the nation's debt ceiling needs to be raised.

Data released on Thursday showed U.S. consumer spending rose slightly less than expected in July and annual inflation increased at its slowest pace since late 2015. There was also a small increase in new applications for unemployment benefits last week amid a tightening job market.

Friday's nonfarm payrolls report is expected to show that employers added 180,000 jobs in August, according to the median estimate of 93 economists polled by Reuters.

"I don't think today's jobs data will make much difference to the Fed," said Mitsuo Imaizumi, Tokyo-based chief foreign-exchange strategist for Daiwa Securities.

"Whether or not the Fed hikes again depends on the overall trend, and what the employment situation is like in autumn, and by then, no one will be thinking about the August figures, whether they're good or bad today," Imaizumi said.

Financial markets were pricing in a roughly one-in-three chance of a rate increase at the Fed's December meeting, according to CME Group's FedWatch, down from about even chances as recently as last month.

At its meeting later this month, the Fed is still expected to announce its plan to begin trimming its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities.

Elsewhere, at its own policy meeting next Thursday, the European Central Bank is highly unlikely to take any decision on trimming its asset purchases, which will be phased out only slowly as the euro's rapid gains against the dollar are worrying a growing number of ECB policymakers, three sources familiar with discussions told Reuters.

The euro edged down 0.1 percent to $1.1895 , down 0.2 percent for the week but up more than 13 percent this year.

The ECB's purchase scheme is due to expire at the end of 2017 and the central bank has said it will announce in autumn if it will extend the plan it put in place two and a half years ago. ECB chief Mario Draghi has said that the program will continue until the central bank is happy that inflation is consistent with its medium-term target of just below 2 percent.