FOREX-Dollar slides after weak U.S. economic data; impact of OPEC+ cuts fades

OPEC+ announces output cuts; dollar gives up gains

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Investors re-focus on central bank policy divergence

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ISM manufacturing index falls, construction spending dips

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Fed expected to hike by 25 bps in May, pause in June

By Gertrude Chavez-Dreyfuss NEW YORK, April 3 (Reuters) - The dollar dropped on Monday, surrendering earlier gains following the announcement of unexpected oil output cuts from OPEC+, after data showed the U.S. economy continued to slow with the decline in manufacturing and construction spending. Data on Monday added to the narrative that the Federal Reserve is near the end of its rate-hike cycle. An announcement on Sunday of output target cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, propelled oil prices higher. Brent crude last traded at $84.9 per barrel, up 5.7%. The dollar initially rose after the announcement.

OPEC+ was expected to stick to cuts of two million barrels per day (bpd) which were already in place until the end of 2023, but instead announced further output cuts of around 1.16 million bpd.

Karl Schamotta, chief market strategist at Corpay in Toronto said that after the oil news, markets have pivoted back toward "the deeper disinflationary fundamentals that are likely to drive the monetary policy outlook."

"Central banks are thought likely to stay focused on growth, employment and core inflation measures, which reflect energy prices at a long lag, so market-implied odds on rate cuts are reverting toward pre-production cut levels. Rate differentials are correspondingly turning back against the dollar." Monday's economic reports showed U.S. manufacturing activity in March slumped to its lowest level in nearly three years as new orders continued to contract. The Institute for Supply Management (ISM) said its manufacturing PMI fell to 46.3 last month, the lowest since May 2020, from 47.7 in February. "The survey ... suggests that – despite stronger gains in core goods prices in recent months – underlying inflationary pressures in the manufacturing sector are continuing to evaporate," wrote Andrew Hunter, deputy chief economist, at Capital Economics in a research note. U.S. construction spending, on the other hand, slipped 0.1% in February after increasing 0.4% in January.

"Overall, we continue to expect the wider economy to follow the manufacturing sector into recession soon," Hunter added. The dollar extended losses after Monday's data. On Monday, federal funds futures priced in a 60% chance of another 25 basis-point (bp) rate hike by the Fed in May. That was around 65% before the data. Futures traders have also factored in a pause in June and rate cuts by December. In the euro zone, traders are pricing in around 60 basis points of further tightening by the European Central Bank by the end of the year after data released on Friday showed an acceleration in core price growth in the euro area. The euro was last up 0.4% at $1.0886, after touching a one-week low of $1.0788 earlier in the session. The dollar index , which measures the currency against a basket of six currencies including the euro, was down 0.8% at 102.14.

Focus this week will be on Friday's jobs report, although many markets will be closed for the Easter holiday.

Against the Japanese currency, the dollar fell 0.3% to 132.36 yen , after earlier hitting its highest level since around mid-March. Sterling was at $1.2395, up 0.6%, while the dollar was dipped 0.2% against the Swiss franc to 0.9132 francs .

Oil-sensitive currencies, such as Norway's krone and the Canadian dollar were beneficiaries of rising oil prices.

The risk-sensitive Australian dollar was last up 1.4% at US$0.672 ahead of a policy meeting at the Reserve Bank of Australia on Tuesday, with markets placing around an 85% chance the central bank will stand pat on interest rates after 10 hikes. The Aussie dollar earlier hit a one-month high versus the greenback.

======================================================== Currency bid prices at 11:08AM (1508 GMT) Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change

Session
Dollar index 102.1900 102.9400 -0.71% -1.256% +103.0600 +101.9600 Euro/Dollar $1.0885 $1.0842 +0.40% +1.59% +$1.0917 +$1.0788 Dollar/Yen 132.3150 132.8100 -0.35% +0.95% +133.7500 +132.2800 Euro/Yen 144.04 143.97 +0.05% +2.67% +144.9400 +143.6400 Dollar/Swiss 0.9132 0.9152 -0.21% -1.23% +0.9195 +0.9117 Sterling/Dollar $1.2388 $1.2328 +0.50% +2.45% +$1.2420 +$1.2275 Dollar/Canadian 1.3458 1.3516 -0.44% -0.69% +1.3536 +1.3426 Aussie/Dollar $0.6776 $0.6687 +1.34% -0.59% +$0.6788 +$0.6652 Euro/Swiss 0.9938 0.9923 +0.15% +0.43% +0.9962 +0.9905 Euro/Sterling 0.8785 0.8791 -0.07% -0.67% +0.8806 +0.8772 NZ $0.6287 $0.6255 +0.54% -0.96% +$0.6298 +$0.6205 Dollar/Dollar
Dollar/Norway 10.3140 10.4740 -1.55% +5.07% +10.4860 +10.2930 Euro/Norway 11.2286 11.3442 -1.05% +7.00% +11.3189 +11.2194 Dollar/Sweden 10.3879 10.3761 +0.62% -0.18% +10.4416 +10.3556 Euro/Sweden 11.3093 11.2397 +0.62% +1.43% +11.3120 +11.2451

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Toby Chopra, Kirsten Donovan and Josie Kao)