Stocks recede from two-month highs; Aussie dollar tanks

NEW YORK (Reuters) – The Australian dollar tumbled on Wednesday after the country’s central bank signaled a possible interest-rate cut in the latest indication that a global economic slowdown is tilting policymakers toward looser monetary policy, while a gauge of world equity markets edged off two-month highs.

A man smokes next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018. REUTERS/Daniel Munoz

Wall Street’s benchmark S&P 500 slipped amid concerns over growth, disappointing earnings reports and another possible U.S. government shutdown in the wake of President Donald Trump’s State of the Union address on Tuesday. European shares gained slightly.

Australia’s central bank was the latest to signal policy easing in the face of economic headwinds. Last week, the U.S. Federal Reserve said it would be patient on further rate hikes as Fed Chairman Jerome Powell said the case for rate increases had “weakened,” and the European Central Bank sounded less certain that it will start tightening policy later this year.

The about-face pushed the Australian dollar down 1.62 percent against the U.S. dollar, putting it on track for its biggest daily drop since November 2016. In turn, the U.S. dollar moved higher against a basket of major currencies.

“We are starting to see central banks follow Powell’s lead,” said Chris Gaffney, president of world markets at TIAA Bank in St. Louis. “That’s what’s actually contributed to this dollar rally that we have seen recently.”

The dollar index, which tracks the greenback against six major currencies, rose 0.32 percent. The euro was down 0.42 percent to $1.1364. The index was on pace for a fifth day of gains.

On Wall Street, the Dow Jones Industrial Average fell 21.22 points, or 0.08 percent, to 25,390.3, the S&P 500 lost 6.09 points, or 0.22 percent, to 2,731.61, and the

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