The US dollar held near a two-month high on Thursday after stronger-than-expected manufacturing data raised fresh concerns about inflation and supported expectations for higher interest rates.
The strength of the US currency pushed the euro down to $1.1378, its lowest level in two months, while the British pound hovered near a three-month low at $1.3231. The dollar index, which measures the US currency against a basket of major currencies, remained close to a two-month high at 101.1.
A stronger-than-expected purchasing managers’ index report released overnight raised renewed concerns about prices. Meanwhile, weak demand at a US Treasury five-year note auction triggered another round of bond selling, pushing five-year Treasury yields above 5% for the first time since 2007.
Federal Reserve Governor Michael Barr said Wednesday that rising inflation risks and a strong economy mean the Federal Reserve is likely to raise interest rates further. Markets interpreted his remarks as forward guidance, prompting traders to increase bets on another monetary policy tightening at next month’s meeting.
“Given the relative strength of growth in the United States and the increasingly strong expectations of a Federal Reserve rate hike, the US dollar continues to hold up as an attractive investment asset,” said Chris Weston, head of research at Pepperstone.
Inflation risks were further heightened by a roughly 4% jump in oil prices on Wednesday after the Iranian president vowed never to surrender, while markets also assessed the possibility of US President Donald Trump imposing a ban on diesel exports.
According to CME’s FedWatch tool, traders now see roughly a 70% probability that the Federal Reserve will raise interest rates at its October meeting, up from 50% a week earlier.
The Japanese yen hovered around 157.9 per dollar, close to a three-week low, with traders remaining alert to the possibility of official intervention after markets judged last week’s Bank of Japan rate increase to its highest level in 31 years as insufficiently hawkish.
The Australian dollar stood at $0.7035, down 0.07%, ahead of the release of the latest employment data, while the New Zealand dollar was steady at $0.5676.
The offshore yuan was steady at 6.7119 per dollar as markets watched Chinese President Xi Jinping’s first visit to the United States in three years, which is expected to test bilateral relations amid continuing tensions over trade, technology, Taiwan and Tehran.
Source: Reuters
