USD Near Two-Week High as Strong Economic Data Calms Recession Fears
By Kevin Buckland
In the world of finance, the dollar is currently hovering near a two-week high against the yen, following its largest one-day gain against major peers in four weeks. This surge is attributed to firm U.S. economic data that has all but eliminated fears of a looming recession.
One of the main drivers behind the greenback’s strength against the Japanese currency is the surge in Treasury yields. Traders have scaled back their expectations of aggressive easing by the Federal Reserve next month, leading to a boost in the dollar’s value.
On the flip side, risk-sensitive currencies like sterling have been performing well, fueled by an improved economic outlook that has sparked a rally in equities.
The Dollar Index, which measures the greenback against six major peers, including the yen, sterling, and euro, remained relatively stable at 103.20 after a 0.41% rally overnight – the most significant increase since July 18.
While the dollar slightly eased against the yen to 149.11, it remained close to Thursday’s peak of 149.40, a level not seen since August 2.
A positive report from the Commerce Department revealed a 1.0% increase in retail sales last month, surpassing expectations of a 0.3% gain. Additionally, data showed that 227,000 Americans filed for unemployment benefits last week, fewer than the anticipated 235,000.
Traders are now more convinced that the Fed will cut rates on September 18, with odds currently standing at 25% for a 50 basis-point reduction. This is down from 36% just a day earlier, according to the CME Group’s FedWatch Tool.
With growth in a better position, market sentiment is leaning towards a ‘soft landing’ scenario. Chris Weston, head of research at Pepperstone, pointed out that 150 yen per dollar is the next key level to monitor for the currency pair.
Sterling saw a slight uptick to $1.2859, building on its 0.21% gain from the previous day, boosted by solid GDP figures released on Thursday.
Meanwhile, the euro remained flat at $1.0973, following a 0.36% decline in the previous session. The risk-sensitive Australian dollar held steady at $0.66105 after a 0.2% increase the day before, driven by data showing a larger-than-expected surge in jobs.
Analysis:
The recent positive economic data from the U.S. has helped boost the dollar against major currencies like the yen and euro. This has also led to increased confidence in the market and a reduced fear of an impending recession. Traders are now expecting the Federal Reserve to cut rates next month, but the size of the reduction remains uncertain. Overall, the economic outlook appears to be improving, with key currency pairs like USD/JPY and GBP/USD showing signs of strength.
