Dollar falls after US services data and talk of Powell reducing pressure on Treasuries

By Fabricio de Castro

SÃO PAULO (Reuters) – The dollar in cash closed Wednesday falling against the real, after data from the North American services sector and statements by Federal Reserve chair Jerome Powell reduced pressure on the Treasuries market, taking strength from the US currency abroad as well.

The dollar in cash closed the day at 5.0418 reais on sale, down 0.34%.

At 5:10 pm, on B3, the first maturity dollar futures contract fell 0.57%, to 5.0535 reais on sale.

In the morning, the dollar demonstrated strength against the real and in relation to most other currencies abroad, in a movement that accompanied the rise in Treasury yields.

Behind this was the perception, reinforced by some data this Wednesday, that the Fed could postpone the start of the interest rate cuts process until July or later.

At the start of the session, figures from the ADP report showed that 184,000 jobs were opened in the US private sector last month, after 155,000 vacancies in February, in a revised figure. Economists consulted by Reuters predicted the creation of 148,000 jobs last month.

In line with the rise in yields and the dollar abroad, the North American spot currency reached a maximum price of 5.0929 reais (+0.67%) at 10:56 am.

The scenario began to change at 11 am, when the numbers for the North American services sector from the Institute for Supply Management (ISM) came out. The ISM non-manufacturing Purchasing Managers’ Index (PMI) fell from 52.6 in February to 51.4 in March, the indicator’s second consecutive monthly decline.

Economists polled by Reuters predicted the index would rise to 52.7 in March. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of the US economy, but the results indicate that growth slowed from February to March.

Immediately after the ISM numbers, yields lost strength in the USA, which also weighed on dollar prices against other currencies, including the real.

During the afternoon, downward pressure on the dollar continued amid statements from Powell. At a university event, he expressed caution about the future of US monetary policy. Furthermore, he pointed out that there are risks of cutting interest rates too early, but also of waiting too long. Powell also stated that monetary policy is tight and working and that the labor market is rebalancing.

“In practice, Powell still signals the prospect of an interest rate cut in June. He did not rule out three cuts this year, which made the dollar accelerate its fall after lunch”, pointed out the director of Correparti Corretora, Jefferson Rugik.

At the session’s low, at 2:09 pm, the dollar in cash was quoted at 5.0358 reais (-0.46%).

In the morning, the market also monitored the statements made by the president of the Central Bank, Roberto Campos Neto, during an event in São Paulo. In addition to dealing with monetary policy, he stated that the exchange rate intervention carried out by the monetary authority this week “had nothing to do” with the movement of the exchange rate, which is floating.

“Our intervention had nothing to do with the movement of the exchange rate, we always say that the exchange rate is floating, it is important to be floating because it works as an element that absorbs shocks and redistributes resources more efficiently, but we had an NTN-A that was going to win that we thought was big and could have some dysfunction on the day”, he stated.

On Tuesday, the BC held an extra auction of 20,000 traditional currency swap contracts, worth 1 billion dollars. The extra supply of swaps, whose effect is equivalent to the sale of dollars in the futures market, was intended to meet the demand generated by the redemption of the NTN-A3 bond, linked to the exchange rate, scheduled for April 15th.

At 5:10 pm, the dollar index – which measures the performance of the US currency against a basket of six currencies – fell 0.48%, to 104.270.

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