The US dollar dropped to its lowest point in nearly two months on Tuesday, reflecting weaker-than-expected economic data that reignited expectations of a Federal Reserve interest rate cut.
Manufacturing activity in the US contracted for the second month in a row in May, according to data released on Tuesday. The Institute for Supply Management’s (ISM) Purchasing Managers Index (PMI) for manufacturing fell to 48.7, lower than both analyst forecasts (49.6) and April’s reading (49.2). This suggests a potential slowdown in the US economy.
Furthermore, construction spending in the US unexpectedly declined in April, with non-residential activity leading the downward trend.
In response to this data, US dollar index futures dipped slightly to 104.03, while US benchmark treasury yields slipped to around 4.4%. The weaker dollar reflects decreased demand for the currency as investors anticipate a potential shift in the Federal Reserve’s monetary policy.
The upcoming Nonfarm Payrolls report for May, scheduled for release later this week, is now seen as a crucial data point that could influence the Fed’s decision on future interest rates.
The Euro (EURUSD) and British Pound (GBPUSD) gained slightly against the US dollar, trading at $1.0908 and $1.2799 respectively.
