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Forex - U.S. Dollar Sharply Lower, but Set to Close Week Near 5-Month Highs

Published 2020-02-21, 03:00 p/m
Updated 2020-02-21, 03:18 p/m
© Reuters.

© Reuters.

By Yasin Ebrahim

Investing.com – The dollar fell sharply Friday, paced by losses against the pound and yen following data showing the key U.S. services sector unexpectedly contracted, signaling potential trouble ahead of the U.S. economy.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.57% to 99.57. But the world's reserve currency remains on track to round off the week at nearly five-months highs.

The IHS Markit flash services sector Purchasing Managers' Index dropped to 49.4 in February, the lowest in six years, raising concerns about the health of the broader economy as services account for roughly 66% of total growth.

The weakness in manufacturing, continued, showing a weaker-than-expected reading of 50.8.

With signs of potential wobble in the U.S. economy, traders returned to the safe-heaven yen.

USD/JPY fell 0.42% to 111.64.

The pound, meanwhile, woke up from its recent slumber, rising 0.6% against the greenback amid more evidence the U.K. economy is on the mend.

U.K. manufacturing activity topped estimates in February, but services just missed economists' forecasts for a reading of 53.4, according to data from IHS Markit.

EUR/USD rose 0.68% to $1.0857 as better-than-expected eurozone composite purchasing managers' index data suggested the economic bloc has shrugged off the impact of the virus so far.

"For the time being, domestic demand has been able to counter the initial fallouts due to the coronavirus outbreak, thus removing pressure on the European Central Bank to consider easing measures to support the economy," UniCredit's economist Edoardo Campanella said.

USD/CAD fell 0.35% to C$1.3208, as the loonie rallied on better-than-expected Canadian retail sales data. RBC warned, however, "economic activity should eventually rebound from temporary factors, but downside surprises are more likely at this stage in the economic cycle."

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