On Friday, the U.S. dollar strengthened against a basket of currencies as the most recent batch of information on global business activity demonstrated the superior standing of the United States in comparison to other major economies.
S&P Global said that the manufacturing and services sectors’ combined flash U.S. Composite PMI index fell to a level of 50.1 in September from a final value of 50.2 in August. The outcome for September was just barely above the threshold of 50 that distinguishes expansion from contraction.
However, despite predictions that the U.S. economy would contract this year, most economists believed that the Federal Reserve’s aggressive interest rate rises intended to combat inflation would be the cause.
The report was released shortly after depressing statistics from Europe that revealed France’s economic output declined far faster than anticipated in September.
Separate survey results for the entire euro zone indicated that the third quarter’s economic growth was probably negative.
“The U.S. is continuing to outpace the rest of the world and I think it will continue to do so for some time,” market analyst Michael Brown at Trader X said of the U.S. figures.
As the FX market’s focus increasingly switches to which central bank will spend the longest time at its current rate, I struggle to take a pessimistic view on the dollar over the medium term, until we see a prolonged pickup in growth in the remaining DM (developed markets).
The U.S. dollar index, which compares the value of the dollar to six important rival currencies, increased by 0.2% to 105.6 after reaching a high of 105.78 earlier in the session. The index is now on track to post a weekly rise of roughly 0.3%, marking its 10th consecutive week of gains and its longest winning streak in almost a decade.
The U.S. central bank needs to raise interest rates further to control inflation in a “timely way,” Federal Reserve Governor Michelle Bowman said on Friday in remarks that sketched out a hawkish argument based on a potential rise in energy prices and a possibility the inflation battle may take years to complete.
On Wednesday, the Federal Reserve maintained interest rates unchanged at 5.25% to 5.5%, but made clear that it would maintain them there for as long as necessary to bring inflation back to 2%.
The Bank of Japan (BOJ) held interest rates in negative territory days after the Federal Reserve indicated that U.S. borrowing costs will remain high, adding pressure on the Japanese currency, which caused the yen to decline on Friday.
On Friday, the BOJ maintained interest rates at -0.1% and reaffirmed its commitment to continuing to support the economy until it is convinced inflation would remain at the 2% target.
According to BOJ Governor Kazuo Ueda, “We have yet to foresee inflation stably and sustainably achieve our price target.”
As it approaches the 150-point threshold where analysts predict government action to support the currency, the value of the yen fell as low as 148.42 to the dollar. At 148.375 yen, the dollar was recently up 0.53%.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, characterised the report as “rather dovish” and claimed that this was the reason why the yen rose above 148.
The idea that Tokyo might step in to strengthen the yen gained traction. Shunichi Suzuki, the finance minister of Japan, stated on Friday that he would not rule out any possibilities but cautioned against a currency sell-off that would harm the trade-dependent economy.
As a result of data indicating that the UK economy slowed significantly in September and is probably on the verge of recession, sterling was down 0.47% at $1.2237.
The Bank of England (BoE) stopped its extended run of interest rate increases on Thursday, a day after Britain’s rapid pace of price growth unexpectedly slowed. It was close to the approximately six-month low of $1.22305 it set on Thursday.