NEW YORK: The US dollar weakened against major currencies on Tuesday after weaker-than-expected U.S. economic data reinforced views that the Federal Reserve would take a dovish stance in a policy statement Wednesday.
The U.S. dollar index, which measures the greenback against a basket of six major currencies, was last down 0.44 percent at 94.418 after U.S. March durable goods orders and April consumer confidence data came in below the expectations of economists polled by Reuters.
Tuesday's economic data "plays into the idea that the Fed need not be in any rush to raise rates," said Richard Franulovich, senior currency strategist at Westpac Banking Corporation in New York.
Fed fund futures contracts on Tuesday suggested traders were pricing in no chance that the Fed would hike interest rates again this month and only a 23 percent chance that the central bank would hike in June, according to CME Group's FedWatch program. Fed interest rate increases are expected to boost the dollar by driving investment flows into the United States.
The Bank of Japan will announce a policy decision within hours of the Fed statement, on Thursday. Analysts said expectations were for the BOJ to increase its stimulus measures.
The BOJ introduced negative rates earlier this year and has run a quantitative and qualitative easing (QQE) program since April 2013, but these measures have so far failed to generate the inflationary pressures needed to reach the central bank's 2 percent inflation target by the first half of fiscal 2017.
The dollar's slight weakness against the yen on Tuesday was in response to expectations for a dovish Fed, but also reflected how anticipation for more BOJ stimulus measures had already been acted upon as much as a week ago, said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.
"The market now expects actions from the BOJ, and so it has priced it in accordingly," Borthwick said.
The yen lost 2.1 percent in value against the dollar on Friday. That marked its biggest one-day fall since BOJ Governor Haruhiko Kuroda announced a second round of monetary easing in October 2014. The trigger was a Bloomberg report that said the BOJ was considering applying negative rates to its lending program for financial institutions.
The dollar was last down 0.07 percent against the yen at 111.11 yen.
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