The dollar rose against a basket of its major peers on Thursday, after better-than-expected U.S. data and a dovish European Central Bank forced investors to reconsider the assumption that the Federal Reserve will pause interest-rate hikes.
The U.S. economy grew faster than expected in the second quarter as labor market resilience underpinned consumer spending, while businesses boosted investment in equipment, potentially keeping a recession at bay.
Meanwhile, the number of people receiving benefits after an initial week of aid, a proxy for hiring, dropped 59,000 to 1.690 million during the week ending July 15. The so-called continuing claims remain low by historical standards, suggesting that some laid-off workers are quickly finding employment.
"The assessment of Q2 data was extremely strong and points towards demand remaining a bit firmer than many had projected going into this quarter,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.
"That tells us that there’s still considerable two-way risks to the incoming U.S. data, and the market will probably need to reassess its view that the Fed doesn’t need to tighten again.”
The dollar index, which measures the currency against six major peers, rose 0.682% to 101.770, while the euro is down 0.86% at $1.0988.
The ECB lifted its deposit rate to a historic high on Thursday and kept its options open on whether more increases will be needed to bring down inflation. Evidence of a slowdown in Europe has mounted as loan demands hit a record low in the second quarter, business confidence has deteriorated in Germany, and disappointing Purchasing Manager Indexes came in below expectations for the eurozone as a whole.
"All in all, it’s still the case that the U.S. economy is looking resilient on various different fronts,” said Jane Foley, head of FX strategy at Rabobank London. "The dollar has recovered some ground recently, but certainly it does question the market’s expectation for interest rate cuts, for instance, from the Fed looking ahead.”
The Fed raised rates by a quarter of a percentage point, as expected, on Wednesday, marking its 11th rate increase in its last 12 meetings. Fed Chair Jerome Powell left open the possibility of another hike in September.
Markets await news from the Bank of Japan, which analysts said could be the wildcard of the trio of central banks to meet this week.
The Bank of Japan (BOJ) announces its monetary policy decision on Friday and is largely seen maintaining its ultra-loose policy stance, although a tweak to its yield curve control policy remains a possibility.
The Japanese yen weakened 0.72% versus the dollar at 141.22, while Sterling was last trading at $1.2834, down 0.81%.
"Even if the Bank of Japan are cautious and doesn’t deliver any change in policy tomorrow, it’s quite possible that expectations will just immediately switch to September, meaning that any sell-off in the yen could be quite short-lived,” said Foley.
In cryptocurrencies, bitcoin last fell 0.82% to $29,334.00.
Ethereum last fell 0.58% to $1,869.10.
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index
101.7700 101.1000 +0.68% -1.662% +101.8400 +100.5400
Euro/Dollar
$1.0990 $1.1086 -0.86% +2.57% +$1.1150 +$1.0985
Dollar/Yen
141.2300 140.2450 +0.71% +7.73% +141.3050 +139.3850
Euro/Yen
155.20 155.45 -0.16% +10.62% +156.2300 +154.8100
Dollar/Swiss
0.8683 0.8606 +0.91% -6.08% +0.8688 +0.8554
Sterling/Dollar
$1.2835 $1.2940 -0.80% +6.14% +$1.2995 +$1.2826
Dollar/Canadian
1.3198 1.3206 -0.06% -2.59% +1.3210 +1.3159
Aussie/Dollar
$0.6722 $0.6760 -0.55% -1.39% +$0.6821 +$0.6722
Euro/Swiss
0.9540 0.9540 +0.00% -3.59% +0.9550 +0.9523
Euro/Sterling
0.8560 0.8565 -0.06% -3.21% +0.8599 +0.8556
NZ
Dollar/Dollar $0.6192 $0.6210 -0.27% -2.46% +$0.6273 +$0.6192
Dollar/Norway
10.1400 10.1460 +0.01% +3.39% +10.1610 +9.9990
Euro/Norway
11.1441 11.2059 -0.55% +6.20% +11.2659 +11.1154
Dollar/Sweden
10.4927 10.3921 +0.04% +0.82% +10.5081 +10.3004
Euro/Sweden
11.5275 11.5224 +0.04% +3.39% +11.5465 +11.4731
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