Dollar falls on downbeat US data and selloff in US yields

The greenback fell across the board on Tuesday due to a selloff in U.S. Treasury yields together with the release of downbeat U.S. manufacturing and services PMI data.  
  
Reuters reported U.S. business activity slowed moderately in May as higher prices cooled demand for services while renewed supply constraints because of COVID-19 lockdowns in China and the ongoing conflict in Ukraine hampered production at factories. S&P Global said on Tuesday its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to a reading of 53.8 this month from 56.0 in April. That growth pace, which was the slowest in four months, was attributed to "elevated inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth."  
  
Versus the Japanese yen, dollar met renewed selling at 128.08 in Asian morning and retreated sharply to 127.10 in European morning. The pair then tumbled in New York morning in tandem with U.S. yields to an intra-day low at 126.37 due partly to cross-buying in jpy before stabilising.  
  
The single currency found renewed buying at 1.0662 in Asian morning and jumped to 1.0735 in early European morning on hawkish comments from ECB's Lagarde. The pair then ratcheted higher to an intra-day high at 1.0748 in New York on usd's weakness together with cross-buying of euro especially vs sterling.  
  
Sources from Reuters, European Central Bank President Christine Lagarde said on Tuesday she saw the ECB's deposit rate at zero or "slightly above" by the end of September, implying an increase of at least 50 basis points from its current level. "We're moving very likely into positive territory at the end of the third quarter," Lagarde said in an interview with Bloomberg TV. Asked to clarify that comment, she added: "When you're out of negative (rates) you can be at zero, you can be slightly above zero. This is something that we will determine on the basis of our projections and... forward guidance."  
  
The British pound found renewed buying at 1.2548 in Asian morning and gained to session highs at 1.2598 in early European morning. The pair then erased its gains and tumbled on the release of poor UK manufacturing and services PMI data to an intra-day low at 1.2472 at New York open. Cable then staged a strong short-covering rebound to 1.2555 due partly to usd's broad-based weakness.  
  
More from Reuters, the momentum in Britain's economy slowed much more than expected this month, adding to recession worries as inflation pressures ratcheted higher, according to a business survey on Tuesday that showed rising pessimism. "The latest data indicate a heightened risk of the economy falling into recession as the Bank of England fights to control inflation," said Chris Williamson, chief business economist at S&P Global Market Intelligence. The slowdown was most acute in the dominant services sector, where businesses' optimism about the coming 12 months fell to its lowest level since May 2020 - during the first coronavirus lockdown. The flash PMI for the manufacturing sector also fell in May to 54.6 from 55.8 in April, marking its lowest level since January 2021.   

Data to be released on Wednesday:  
  
Australia construction work done, New Zealand RBNZ interest rate decision, Japan coincident index, leading indicator, Germany GDP, Gfk consumer confidence, France consumer confidence, Swiss investor sentiment, U.S. mortgage application, durable goods, durables ex-transport and durables ex-defense.