Dollar nurses wounds as factory data sparks economy concern

TOKYO (Reuters): The dollar traded near a one-week low versus the yen on Tuesday and near the lowest in almost two weeks against the euro, on concern about weak US manufacturing data and signs of new fronts in the US trade war.

Sentiment also took a hit after US President Donald Trump announced tariffs on metal imports from Brazil and Argentina. 

Against a basket of six major currencies, the dollar index stood at 97.887, having fallen on Monday by the most in six weeks

Recent US economic data had shown signs of improvement, so a fourth consecutive month of shrinking manufacturing activity as well as an unexpected decline in construction spending put a big dent in hopes that the world’s largest economy had stabilised.

Investors are also worried about how the United States will scale back a 16 month-long trade war with China, while more tariffs on other countries’ goods would pose an additional risk to the global economic outlook.

“The weak data forced a lot of people to give up dollar longs and cut losses,” said Daiwa Securities’ foreign exchange strategist Yukio Ishizuki in Tokyo.

“This may have run its course, but there’s no reason to chase the dollar’s upside from here. Trade friction remains a lingering threat, which is not good for market sentiment.”

The dollar traded at 109.00 yen JPY=EBS on Tuesday in Asia, close to its lowest in a week. It was quoted at $ 1.1076 versus the euro EUR=EBS after falling 0.56% on Monday, its biggest decline against the single currency since Sept. 17.

Against a basket of six major currencies, the dollar index stood at 97.887, having fallen on Monday by the most in six weeks.

On Monday, the US Institute for Supply Management said its index of national factory activity fell 0.2 point to 48.1 in November. A reading below 50 indicates contraction. Economists polled by Reuters had forecast a rise to 49.2 from 48.3 a month prior.

Separate data showed construction spending fell in October as investment in private projects tumbled to the lowest level in three years.

The data surprised economists who had recently raised US growth forecasts for the fourth quarter due to positive data on trade, housing and manufacturing.

Meanwhile, Trump surprised policymakers in Brazil and Argentina with tariffs on steel and aluminum imports.

In a Monday tweet, Trump said the tariffs, “effective immediately”, were necessary because “Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers.”

The comment came despite both countries actively trying to strengthen their currencies against the dollar.