June 21, 2018 / 12:33 AM / 6 months ago

Dollar retreats from 11-month high; sterling rises after BOE

NEW YORK (Reuters) - The dollar fell from an 11-month high against a basket of major currencies on profit-taking on Thursday, while sterling recovered from a seven-month low as the Bank of England’s top economist unexpectedly supported an interest rate hike.

FILE PHOTO: U.S. Dollar banknotes are seen in this photo illustration taken February 12, 2018. REUTERS/Jose Luis Gonzale/Illustration/File Photo

The Philadelphia Federal Reserve’s gauge of U.S. Mid-Atlantic business activity fell to a 1-1/2 year low, raising concern about the U.S. economy and causing some traders to book profits on bullish dollar bets, analysts said. Lower yields on U.S. Treasuries and the euro’s finding chart support in the $1.15 area also contributed to the dollar’s weakness.

“Philly Fed missed on the downside. That was a convenient excuse for traders to take profits,” said Joe Manimbo, senior market analyst with Western Union Business Solutions in Washington.

The Philadelphia Fed index on U.S. Mid-Atlantic business activity fell to 19.9 in June from 34.4 in May, its steepest fall since January 2014.

“The market is quite sensitive to business activity data lately. We did see some weakness in the dollar come through,” said Brian Daingerfield, macro strategist at NatWest Markets in Stamford, Connecticut.

The escalation in the U.S.-China trade conflict had underpinned safe-haven support for the dollar in recent days.

The trade concerns and the weaker data dragged down U.S. Treasury yields. The 10-year yield US10YT=RR fell to 2.904 percent.

The dollar index .DXY, which tracks the greenback against six other currencies, shed 0.3 percent to 94.762 after earlier touching 95.529, its highest level since last July.

The euro rebounded from an 11-month low to $1.1618 EUR= after testing technical support in the $1.15 area.

The single currency had fallen on bets of a protracted period of monetary policy divergence between the U.S. Federal Reserve and the European Central Bank. In addition, the Italian government’s appointment on Thursday of two euro-skeptics to head key finance committees reignited worries about anti-euro voices in the euro zone’s third-largest economy.

Against the yen, the greenback lost 0.4 percent, to 110.93 yen JPY=.

Elsewhere, sterling GBP=D3 rose nearly 0.7 percent at $1.3257, recovering from a seven-month trough after the Bank of England's chief economist, Andy Haldane, unexpectedly joined the minority of policymakers calling for rates to rise to 0.75 percent, citing concerns about growing wage pressure.

Haldane’s vote, however, was not enough to flip the BOE’s decision to leave key borrowing costs at 0.5 percent.

The Mexican peso hit 20.2005 peso per dollar MXN=D2, its strongest level in over two weeks after Mexico's central bank increased benchmark rates by a quarter point to 7.75 percent in a bid to hold down inflation.

Reporting by Richard Leong in New York; Additional reporting by Tommy Wilkes in London; Editing by Leslie Adler

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