Dollar Climbs to Six-Week High Amid Economic Strength and Global Tensions
By Karen Brettell
The dollar soared to a six-week high on Thursday, driven by a combination of factors that highlighted the strength of the U.S. economy and global uncertainties. Here’s a breakdown of what’s been happening in the financial world:
U.S. Economy Shows Resilience
- Data revealed that the U.S. services sector saw a significant increase in activity in September, reaching a 1-1/2-year high. This growth was fueled by strong new orders, demonstrating the resilience of the U.S. economy.
- However, the measure of services employment fell, indicating a possible slowdown in the labor market.
- Despite this contractionary data, Juan Perez, director of trading at Monex USA, pointed out that the U.S. remains a strong economic player compared to other countries.
Labor Market Challenges
- Another set of data showed a slight increase in Americans filing new applications for unemployment benefits. Factors like Hurricane Helene’s impact in the U.S. Southeast and ongoing strikes at Boeing and ports could distort the labor market picture in the short term.
Dollar’s Performance
- The dollar climbed 0.33% to 101.98, hitting 102.09, the highest level since Aug. 19. This marked a significant recovery from its 14-month low of 100.15 on Sept. 27.
- Vassili Serebriakov, FX & macro strategist at UBS, noted that the dollar has been gaining traction this week as markets navigate various crosscurrents.
Fed Policy Expectations
- Improved economic data and more hawkish comments from Federal Reserve Chair Jerome Powell have led to reduced expectations of a 50 basis point rate cut at the upcoming Nov. 6-7 meeting.
- All eyes are now on Friday’s jobs report for September, which may influence Fed policy decisions. Economists predict 140,000 job additions and a steady unemployment rate of 4.2%.
Global Tensions and Safe-Haven Demand
- The recent attack on Israel by Iran has raised fears of a broader conflict in the Middle East, contributing to a safety bid for the dollar.
- A dockworker strike in the U.S. has further fueled concerns about disruptions in the supply chain, boosting demand for the greenback as a safe-haven asset.
Euro and Sterling Weakness
- The euro has declined amidst expectations of a rate cut by the European Central Bank due to receding inflation.
- Sterling also tumbled as Bank of England Governor Andrew Bailey hinted at potential aggressive interest rate cuts if inflation pressures persist.
Yen’s Decline
- The dollar reached a six-week high against the yen as Bank of Japan officials emphasized caution in rate adjustments to avoid harming the economy.
Cryptocurrency Market
- In the cryptocurrency realm, bitcoin experienced a 0.36% drop, trading at $60,687.91.
As the financial landscape continues to evolve, it’s crucial for investors to stay informed and adapt their strategies accordingly.
Analysis:
In summary, the dollar’s recent surge reflects a combination of strong economic data, reduced expectations of a Fed rate cut, and global tensions that have boosted its safe-haven appeal. The performance of other major currencies like the euro, sterling, and yen has been influenced by central bank policies and economic outlooks. For investors, understanding these dynamics is essential for making informed decisions and navigating the ever-changing financial markets.