The United States dollar fell to a two-month low against major currencies on Wednesday after weaker-than-expected US economic reports reinforced expectations that the Federal Reserve would maintain its stimulative monetary policy, Reuters reported.
The Fed ends its two-day policy meeting later in the day and is widely expected to keep its monthly purchases of $85bn in bonds to support an economic recovery that’s showing signs of losing momentum.
Sentiment on the dollar began to change after recent data showed below-forecast US first-quarter growth and an unexpected contraction in business activity in the Midwest, reviving fears the US economy has hit a soft patch.
“In last month’s (Fed) meeting, everyone was keen on finding out just how much the Fed board was discussing the potential for shutting down quantitative easing,” said Paul Bregg, a currency trader at Western Union Business Solutions in Denver, Colorado.
“That was when US data was constantly surprising the market, things have changed and the US dollar picture is not quite as bright as first thought.”
The dollar index, DXY, which measures the US currency’s value against a basket of currencies, dropped as low as 81.331, its weakest since February 25. It was last at 81.608, down 0.2 per cent.
Data released on Wednesday added to those worries. US companies hired the smallest number of employees in seven months in April while manufacturing growth slowed. Another report showed U.S. construction spending dropped to a seven-month low in March.
Investors are waiting to see if a sluggish recovery and slowing inflation may even push the Fed into buying more assets. Only a month or so ago, investors expected the Fed to start scaling back asset purchases.