Weak US markets knock dollar, Aussie sinks on low inflation


The U.S. dollar weakened against the euro and on Wednesday, undermined by a decline in U.S. equity prices and Treasury yields and finding little support from a slower-than-expected expansion in the U.S. manufacturing sector.

A smaller-than-expected increase in Australian first-quarter consumer inflation spurred losses of more than 1 percent versus the greenback as the data diminished chances the Reserve Bank of Australia will raise interest rates this year.

The Australian dollar extended its losses in early U.S. trade, touching a low around $0.93.


Australia's growth prospects, at the heart of the central bank's efforts to talk the currency down last year, have improved, while concerns over China have settled somewhat. That was underscored by a weak China PMI survey on Wednesday that was in line with forecasts.

The U.S. dollar's value against a basket of currencies fell 0.01 percent, touching a weekly low.

U.S. manufacturing activity expanded in April, but the rate of growth was slower than expected as inventories fell. Sales of U.S. single-family homes in March were the lowest since July of last year, falling more than expected.

In Europe, April manufacturing activity increased more than expected to a near three-year high. The euro however remains hamstrung by consistently low inflation and investors are wary of the possibility of more monetary stimulus from the European Central Bank.

The euro rose about 0.23 percent to $1.38, and climbed 0.48 percent to 82.41 pence against the British pound.

Sterling fell nearly 0.22 percent to roughly $1.68.

Sterling fell after Bank of England meeting minutes highlighted a growing debate between policymakers about slack in the economy and the medium-term inflation outlook.

The dollar fell 0.30 percent to 102 yen, while the slipped 0.04 percent to under 142 yen.

Still, ECB policymakers are talking about the dangers of any further gains for the euro. Its president, Mario Draghi, has made clear the euro's strength is a possible trigger for the bank to ease monetary policy. He is scheduled to give a speech in Amsterdam on Thursday.

--By Reuters