Written by Karen Brettell
NEW YORK (Reuters) – The dollar rose to a six-week high on Thursday as data showed the U.S. economy remains strong ahead of Friday’s closely watched jobs report, while safe haven demand amid concerns about escalating tensions in the Middle East and the impact… Dockers’ strike also boosted the currency.
The dollar also benefited from more pessimistic central bank forecasts embedded in its currency counterparts, including the euro, sterling and yen.
Data on Thursday showed that US service sector activity jumped to the highest level in a year and a half in September amid strong growth in new orders, despite a decline in a measure of employment in services, consistent with a slowdown in the labor market.
“Today is an example of how quickly the US dollar is recovering,” said Juan Perez, director of trading at Monex USA in Washington. He said that while Thursday’s data was “a bit deflationary,” the United States remains the envy of other countries.
The number of Americans filing new claims for unemployment benefits rose slightly last week, other data showed Thursday, but Hurricane Helen hitting the Southeastern U.S. and strikes at Boeing Co (NYSE:) and ports could distort the near-term labor market picture.
The index last rose 0.33% to 101.98 and reached 102.09, the highest level since August 19. It hit a 14-month low of 100.15 on September 27.
“The dollar is regaining some strength this week…some of it is just markets trying to navigate a lot of cross currents,” said Vasiliy Serebryakov, foreign exchange and macroeconomics analyst at UBS in New York.
Improving economic data and more hawkish comments from Federal Reserve Chairman Jerome Powell on Monday lowered expectations that the Fed will cut interest rates by another 50 basis points at its meeting on November 6-7.
Friday’s jobs report for September is the next major US economic release that could influence Federal Reserve policy. Economists polled by Reuters expect 140,000 jobs to be added, while the unemployment rate is expected to remain steady at 4.2%.
“The US data was a bit stronger, which may make the market a bit more cautious about selling the dollar ahead of the non-farm payrolls report,” Serebryakov said.
Traders are now pricing in a 35% probability of a 50 basis point cut next month, down from 49% a week ago, CME Group’s (NASDAQ:) FedWatch tool shows.
The US currency has benefited from trying to be safe since Israel was attacked by Iran on Monday in a blow that raised fears that the oil-producing Middle East could be plunged into a wider conflict.
Oil prices rose on Thursday due to fears of possible disruption to flows from the region. Asked on Thursday whether he would support Israel striking Iranian oil facilities, US President Joe Biden told reporters: “We are discussing that.”
Long lines of container ships also appeared outside major U.S. ports on Thursday as the largest dockworkers strike in nearly half a century entered its third day, blocking unloading and threatening shortages of everything from bananas to auto parts.
“The US dollar is a safe haven amid the chaos,” Perez said. “In the post-pandemic world, the first concern has been: Can we rebuild health supply chain logistics? And this headline news is completely destroying that stability and health.”
The euro fell amid growing expectations that the European Central Bank will cut interest rates at its meeting scheduled for October 17 as inflation declines.
It fell 0.17% to $1.1026 and reached a low of $1.1008, the lowest level since September 12.
The pound fell after Bank of England Governor Andrew Bailey said the British central bank could move more aggressively to cut interest rates if inflationary pressures continue to weaken.
The pound last fell 1.15% to $1.3114 and reached $1.3093, the lowest level since September 12.
The dollar also reached its highest level in six weeks against the yen, as Bank of Japan board member Asahi Noguchi said the Japanese central bank must move cautiously and slowly to avoid harming the economy.
This comes after Prime Minister Shigeru Ishiba said on Wednesday that Japan is not in an environment that allows for a further increase in interest rates.
The dollar rose in the latest trading by 0.27% to 146.85 and reached 147.25 earlier, the highest level since August 20.
In cryptocurrencies, Bitcoin fell by 0.36% to $60,687.91.