WASHINGTON (dpa-AFX) - The U.S. dollar drifted lower on Wednesday after data showing a less than expected increase in U.S. private sector employment growth, and an unexpected contraction in the nation's service sector activity raised hopes of a rate cut by the Federal Reserve in September.
A report released by the Institute for Supply Management showed an unexpected contraction by U.S. service sector activity in the month of June.
The ISM said its services PMI slid to 48.8 in June from 53.8 in May, with a reading below 50 indicating contraction. Economists had expected the index to edge down to 52.5.
On the inflation front, the prices index dipped to 56.3 in June from 58.1 in June, indicating a modest slowdown in the pace of price growth.
'The Fed is unlikely to feel comfortable enough with progress on the inflation front to cut rates at the July decision,' said Bill Adams, Chief Economist for Comerica Bank. 'Even so, odds of a rate cut at the following decision in September are higher in light of June's weak ISM PMIs and rising jobless claims.'
A report from the Labor Department showed initial jobless claims rose to 238,000 in the week ended June 29th, an increase of 4,000 from the previous week's revised level of 234,000. Economists had expected jobless claims to inch up to 235,000 from the 233,000 originally reported for the previous week.
Payroll processor ADP also released a report showing private sector employment in the U.S. increased by slightly less than expected in the month of June.
ADP said private sector employment climbed by 150,000 jobs in June after rising by an upwardly revised 157,000 jobs in May.
Economists had expected private sector employment to increase by 160,000 jobs compared to the addition of 152,000 jobs originally reported for the previous month.
The dollar index, which dropped to 105.05, recovered to 105.36, but still remained well below the previous closing level of 105.72.
Against the Euro, the dollar weakened to 1.0789 from 1.0747. The dollar slid to 1.2744 against Pound Sterling, losing nearly 0.5%. Against the Japanese currency, the dollar firmed to 161.72 yen.
The dollar eased to 0.6705 against the Aussie from 0.6668. Against Swiss franc, the dollar weakened to CHF 0.9013 from CHF 0.9039. The dollar slid against the loonie, dropping to C$ 1.3640 a unit, giving up about 0.3% from the previous close.
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