The dollar tumbled on Tuesday after economic data showed the US service sector grew at its slowest pace since early 2010, which dimmed expectations for a near-term interest rate increase from the Federal Reserve. The dollar fell to a one-week low against the Japanese yen after the data, and the British pound rose to its highest level against the dollar since mid-July.
The Institute for Supply Management's non-manufacturing purchasing managers' index fell to 51.4 last month, far short of economists' expectations and the largest one-month drop since November 2008. "When you pair that with data we got Friday, which was non-farm payrolls, disappointing some, what it does is it starts to kick back interest rate expectations past the September meeting and even lowering them in December too," said John Doyle, director of markets at Tempus Inc in Washington.
"You're seeing slightly softer data over the last couple of trading sessions equals less likelihood the Fed will raise rates at the meeting this month and with that comes a slightly weaker dollar." On Tuesday, the dollar fell more than 1 percent against the yen, slipping to 102.05 yen per dollar. The British pound rose by 1 percent against the dollar, touching a fresh seven-week high at $1.3443. The euro rose to $1.1255, its highest since August 26 after the data.
The dollar index dropped 1 percent to 94.821, its lowest since August 26. The New Zealand dollar was the biggest gainer among major currencies, rising 1.4 percent against its US counterpart to its highest level since May 2015. The Australian dollar jumped 1.3 percent against the greenback after the data. The Aussie was also bolstered by the Reserve Bank of Australia's decision to leave interest rates unchanged at 1.5 percent and minimal commentary from the central bank on the currency's 10 percent rise against the US dollar since January.