Dollar drops on disappointing economic data

Disappointing economic data coming out of the US has seen the dollar drop to a two-month low against a basket of other major currencies. Investors now doubt that the Federal Reserve will pull back on its policy of monetary easing in the near future. Figures for April show that in some parts of the US business activity is shrinking. Economic growth for the first quarter was also slower than expected.

The Fed is currently meeting to discuss the economy and is expected to announce that it will continue with its programme of bond buying. The European Central Bank is also meeting this week with some economists predicting that there could be an interest rate cut.

Analysts are also concentrating on employment data due to be released by the US on Friday. A positive announcement will be good for the greenback, whereas disappointing figures could drive the dollar lower.

The euro is currently doing well against its US counterpart and recently was as high as $1.3185. The dollar has fallen against the yen to 97.54 yen, a drop of 0.2 per cent. In the eurozone, inflation has fallen to its lowest level in three years. German retail sales for March dropped unexpectedly and Spain’s economy continues to shrink.

If the ECB decides to go ahead with a rate cut, the euro is likely to fall initially and then bounce back.