By Kate Duguid
NEW YORK, May 24 (Reuters) - The dollar fell on Friday from a two-year high after orders for U.S.-made capital goods fell, further evidence that manufacturing and the broader economy are slowing, due in part to the trade conflict with China.
The weaker-than-expected data, a closely watched proxy for business spending plans, added to the dollar's fall, which began Thursday following a report that showed manufacturing activity hit its lowest level in almost a decade in May. Together, the reports suggested a sharp slowdown in U.S. economic growth was under way, which could affect the dollar's safe-haven status.
Against a basket of six major currencies, the dollar .DXY was down 0.16% at 97.698 and 0.69% off a two-year high of 98.371 hit the previous session.
"Lot of people for good reasons thought trade wars may be U.S. dollar-positive and other countries cannot retaliate," said Commerzbank FX strategist Ulrich Leuchtmann.
"But in reality, it's more difficult. This very disappointing PMI data and other factors like the Huawei story are all creating stress for the U.S. economy and derailing sentiment."
China on Friday denounced U.S. Secretary of State Mike Pompeo for fabricating rumors after he said the chief executive of China's Huawei Technologies Co Ltd [RIC:RIC:HWT.UL] was lying about his company's ties to the Beijing government.
Escalating trade tensions and weak data have fuelled rate cut expectations by the Fed. Money markets broadly expect one rate cut by October followed by another by January 2020.
Dollar weakness also helped boost sterling from a 4-1/2 month low GBP=, though the rally was primarily driven by UK Prime Minister Theresa May's announcement on Friday that she would quit, setting up a contest that will bring a new prime minister to power who could pursue a cleaner break with the European Union. It was last up 0.14% at $1.267.
The euro was also stronger on Friday, up 0.18% to $1.20 benefiting from the dollar's weakness, and from the Dutch part of the EU parliamentary elections. An exit poll showed the Labour party of European Commissioner Frans Timmermans won a surprise victory over a euroskeptic challenger who had been topping opinion surveys.
The single currency is down 2.3% this year, which led analysts at Bank of America to change their forecast of the euro's price at the end of 2019 from $1.20 to $1.17.
(Reporting by Kate Duguid and Abhinav Ramnarayan Editing by Nick Zieminski)
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