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USD Weaker Against EUR and JPY

The dollar weakened against the euro and yen Tuesday after productivity declined for the third straight quarter, giving the Federal Reserve yet another reason to leave interest rates on hold for longer.

The ICE U.S. Dollar Index , a measure of the buck’s value against a basket of six rival currencies, was down 0.2% at 96.2530. The euro  bought $1.1115, compared with $1.1088 late Monday.

The U.S. dollar  traded at ¥102.04, after rising to a high of ¥102.53 earlier in the session. By comparison, it traded at ¥102.32 late Monday in New York.

Productivity in the second quarter unexpectedly fell 0.5%. Economists surveyed by MarketWatch had forecast a 0.3% gain for the quarter.

The buck has drawn buyers in recent sessions thanks to investors refocusing on the solid U.S. July jobs report, released last week, that has renewed hopes for a Federal Reserve interest-rate increase in 2016. In theory, higher rates would cause the dollar to strengthen by increasing the return on dollar-denominated investments.

And while the productivity number certainly didn’t bolster the Fed’s case for raising rates in the coming months, the intense market reaction was more likely due to the absence of other important economic data on the calendar, said John Doyle, director of markets at Tempus Inc.

“It’s a number [the Fed] will take into consideration. But if this number was released on Friday with the retail sales data, we probably wouldn’t even mention it,” Doyle said. “It’s just the only thing we can trade on at the moment.”

via MarketWatch [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza