On Thursday, a strong dollar drove the yen to a 10-month low and kept the euro and sterling stuck near three-month lows as investors continued to have faith in the still-resilient U.S. economy despite a gloomy prognosis for global growth.
In early Asian trading, the dollar reached a new high of 147.865 yen, its highest level since late November.
The dollar was recently 0.05% higher against a basket of currencies at 104.91, maintaining some of its gains from the previous session after reaching a six-month high on the news that the U.S. services sector unexpectedly picked up in August.
The euro fell to $1.0703 on Wednesday, its lowest level since June, due to the stronger-than-anticipated report, and it last traded 0.03% lower at $1.0723.
Similar to other currencies, sterling fell 0.07% to $1.24985, having hit a three-month low of $1.24835 the previous day.
“It certainly was a good (ISM)… so those thinking of a (U.S.) recession in the near term might be a little bit disappointed,” commented Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (CBA). The Beige Book, on the other hand, “wasn’t that great, actually.”
According to the Federal Reserve report released on Wednesday, recent U.S. economic growth has been “modest,” job growth has been “subdued,” and inflation has declined in most regions of the nation.
“I believe that what’s really driving the dollar is not so much how well the American economy is doing, but how well it is doing compared to other economies.”
According to the CME FedWatch tool, market pricing indicates a close to 47% possibility that the Fed will raise rates again in November, despite expectations that they will hold rates steady later in the month.
Bank of England (BoE) Governor Andrew Bailey, on the other hand, stated on Wednesday that the central bank is “much nearer” to ending its rate-hike cycle, while borrowing rates may still need to increase further due to persistent inflation pressures.
The decision to raise interest rates next week was still up in the air, but policymakers from the European Central Bank warned investors that one possibility was for borrowing prices to increase.
Capurso stated, referring to the BoE, “It was surprising to see those dovish comments from Governor Bailey… that certainly does make us comfortable that they’re only going to hike twice more.”
“As for the ECB, what we’re noticing is that there’s a real divergence happening between various ECB members, and that, to me, is suggesting that at most you get one more rate hike out of the ECB.”
While officials intensify their cautions against a sell-off in the yen, traders in Japan remained on intervention alert as the yen battled to gain ground versus the dollar.
The price of the Japanese yen last traded at 147.76 yen to the dollar, having fallen past the highly watched 145 level for almost a month. That was the crucial point at which the government stepped in to support the yen last year.
“Yen’s verbal intervention begs the question as to whether a real intervention is likely,” said Charu Chanana, market strategist at Saxo. Real intervention, as we have seen in the past, only just manages to sustainably alter the direction of the yen.
Both currencies are hovering close to their most recent 10-month lows as the Australian dollar dropped 0.05% to $0.63795 and the New Zealand dollar dropped 0.01% to $0.5869.
Later on Thursday, China’s trade figures are due, and if they show further weakening in the world’s second-largest economy, it might put additional pressure on the currencies of the two antipodean countries.
Both are frequently utilised as liquid substitutes for the Chinese yuan.