Wall Street shares rose in choppy trading as the dollar fell following weaker-than-expected US economic data yesterday that cut expectations of a near-term interest rate increase by the Federal Reserve.
The dollar reversed earlier gains and moved lower after US consumer spending data indicated a sluggish economy with weak first-quarter gross domestic product growth.
Yesterday’s worse-than-expected consumer spending, as well as a downward adjustment to January’s numbers and weak readings for personal income and inflation, cast doubt on the prospect of the Fed raising rates at either of its upcoming meetings in April and June.
The dollar had benefited last week from stronger-than-expected economic data and comments from some Fed officials indicating that policymakers think they could raise interest rates as early as next month.
“Because we had softer [personal consumption expenditures] data and also the big downward revision in spending in January, that is causing a lot of the [dollar] long trades that many have put on to be cut back,” said Kathy Lien, managing director at BK Asset Management in New York.
“Today’s report certainly raises the question of whether the Fed can pull the trigger in June.”
Higher interest rates increase the strength of the dollar by making it more attractive to investors, but a strong dollar can weigh on the returns of firms that do business overseas, hurting earnings.
The dollar index dipped 0.2 per cent against a basket of six major currencies, falling to 95.950. It had risen to as much as 96.339 prior to the data, its highest in almost two weeks.
Following the data’s release yesterday, markets are pricing in only about a 37 per cent chance of a rate hike by the Fed in June, with only a 10 per cent chance of an April increase factored in so far, according to CME Group’s FedWatch tool.
The weak dollar benefited US stocks, which rose in afternoon trading, led by the materials and consumer discretionary sectors, as utilities and energy dragged.
With share markets in Europe closed, as well as those in Australia, New Zealand and Hong Kong for holidays following last week’s Good Friday holiday in the US, trading was generally light for much of the day.
The Dow Jones industrial average rose 34.86 points, or 0.2 per cent, to 17,550.59, the S&P 500 gained 3.55 points, or 0.17 per cent, to 2,039.49 and the Nasdaq Composite added 2.06 points, or 0.04 per cent, to 4,775.57.
MSCI’s measure of emerging markets stocks rose by around 0.1 per cent in thin trading. MSCI’s index of world shares gained 0.11 per cent.
Bonds rose in price in the wake of the US data, with yields on benchmark US 10-year Treasuries falling to 1.8684 per cent.
Oil prices, which have risen about 50 per cent since multi-year lows hit in January, turned lower in thin trading.
US crude futures fell 0.5 per cent to $39.04 per barrel, and Brent lost 0.8 per cent to $40.11.
Fed Chair Janet Yellen and other Fed policymakers are expected to speak today, making the US central bank’s policy the main focus for now.