Dollar weakens as services sector activity disappoints

The dollar weakened against its main rivals Thursday as more evidence emerged that the largest part of the U.S. economy is in the midst of a troubling slowdown. The ISM gauge showed that growth undershot expectations, while the Markit data showed an outright contraction — the first since October 2013.

“Any weakness in these output numbers translates into a weaker GDP,” said Doug Borthwick, head of currency trading at Chapdelaine & Co.

The sector is by far the largest constituent of the U.S. economy. It accounted for 77.6% of U.S. gross domestic product in 2015, according to the CIA World Factbook.

Traders are now turning their attention to Friday’s nonfarm payrolls report. Economists polled by MarketWatch expect 198,000 new jobs to have been created in February. That would be a considerable improvement over the 151,000 jobs created in January.

But the data would need to significantly overshoot expectations to convince the Fed to raise interest rates in the near future, Borthwick said.

“If it comes in around 250,000 to 280,000 then I think the market would say the Fed’s on course to raise interest rates sooner rather than later,” Borthwick said. Borthwick believes such a strong reading would be extremely unlikely.

The dollar has remained within a tight range against its main rivals since Friday, when the currency rallied sharply after the Federal Reserve’s preferred measure of inflation showed strong consumer-price growth in January. Strongest currencies remain AUD and JPY.

MarketWatch...

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