CURRENCIES: Dollar Claws Up From 15-month Lows

By Rachel Koning Beals Features Dow Jones Newswires

Pound hits nearly 11-month high after report shows manufacturing recovery

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The dollar index was clinging on Tuesday to territory just above the 15-month low hit a day earlier, with the U.S. currency dogged by concerns for softening U.S. inflation and reduced bets on the aggressiveness of Federal Reserve interest-rate hikes.

The dollar's trade-weighted index logged a nearly 3% drop in July, its fifth-consecutive monthly decline and the biggest retreat since March 2016.

But the buck perked up somewhat on Tuesday. The ICE Dollar Index , which measures the currency against six major rivals, edged up 0.1% to 92.98.

The dollar's latest decline was kicked off by Friday's reading on U.S. gross domestic product, which came in below expectations, adding to concerns inflation will remain low and maybe keep the Fed from raising interest rates again later in 2017. The central bank has already struck a cautious note on inflation (http://www.marketwatch.com/story/fed-to-wind-down-bond-holdings-relatively-soon-2017-07-26), with the Fed tweaking its official statement in July to say inflation was "running below 2%" instead of "running somewhat below 2%," as it did in the June statement.

Market pricing on the odds of another quarter point U.S. rate increase have been reduced to around 47% compared to a 50% probability a month ago, according to the CME's Fedwatch tool.

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The dollar's outlook was also kept in check amid continued shuffling in the Trump White House after Monday afternoon ouster of recently hired White House communications chief Anthony Scaramucci (http://www.marketwatch.com/story/ex-marine-kelly-in-ex-wall-streeter-scaramucci-out-why-trump-made-switch-2017-07-31). Personnel volatility is seen as one factor that could limit the administration's ability to get through what financial markets view as pro-growth policy in health care changes, infrastructure spending and tax policy overhaul.

"Combined with the replacement of the President's chief of staff a few days ago, this frequent recycling of key White House figures likely enhanced speculation that the fiscal-reform promises of the U.S. administration may be further delayed, or perhaps completely derailed," said Charalambos Pissouros, senior analyst with Iron FX.

However, the greenback could be ripe for at least a modest reversal later this week should the closely watched monthly U.S. jobs report due for release on Friday deliver upbeat news, analysts have said, and that accounts for Tuesday's so far small moves.

The euro was fetching $1.1817 compared to $1.1843 late Monday in New York. The euro traded above the psychologically important $1.18 level for the first time since January 2015 in Monday's session. The shared currency gained 3.5% over July and is up 12.4% year to date.

"Even if the pair corrects lower to challenge the $1.1775 as a support this time, we expect buyers to take charge again soon and perhaps target the $1.1880 hurdle in the near future," said Pissouros. "A break above that resistance is possible to open the way for our next obstacle of $1.1980."

The dollar fell versus the British pound , with sterling changing hands at $1.3216 Tuesday, versus $1.3215 late Monday. Cable, as the pair is nicknamed, was up 1.2% in July and up 6.8% year to date.

The pound earlier hit its highest levels against the dollar since mid-September 2016 as data showing U.K. manufacturing growth recovered from a seven-month low in July eased concerns about an economic slowdown. The Purchasing Managers' Index (PMI) survey climbed to 55.1, topping most forecasts. It was lifted by the biggest rise of new export orders since 2010.

The dollar edged higher against the Japanese yen worth Yen110.40 compared to Yen110.26 late Monday in New York. Over July, the yen gained 1.8% and is up 5.6% year to date.

(END) Dow Jones Newswires

August 01, 2017 07:27 ET (11:27 GMT)