Written by Laura Matthews
NEW YORK (Reuters) – The dollar rose against other major currencies on Friday, hitting an eight-week high against the yen, after data showed the strength of the US economy and with the Federal Reserve’s patient approach to interest rate cuts contradicting analysts’ expectations. . Their peers are more cautious.
US business activity hit a 26-month high in June amid a rebound in hiring while price pressures eased significantly, suggesting the recent slowdown in inflation is likely to continue.
The index, which measures the currency against six other currencies, rose 0.2% to 105.81 in afternoon trading in New York. It had risen 0.41% overnight, erasing declines during the week, following a second successive interest rate cut at the Swiss National Bank and hints from the Bank of England of a cut in August.
Terry Weissman, global FX and interest rates strategist at Macquarie, in New York, sees continued dollar strength as political uncertainty in Europe may eventually dampen business and consumer confidence.
“Even if the euro or the pound rises, I can’t imagine it being a strong or permanent rise,” Weissman said. “I would be more inclined to sell at that high and then cover at a lower point.”
For Matt Wheeler, head of market research at StoneX, Grand Rapids, Michigan, the Japanese yen will be important for forex traders to watch next week.
Wheeler added that the US Treasury Department added Japan on Thursday to the list of countries it is monitoring for possible designation as a currency manipulator, which is a “diplomatic warning against any further interference.” China is among the other countries on the list.
The yen came under pressure after the Bank of Japan's decision last week to postpone reducing bond-buying incentives until its meeting in July. The dollar was trading 0.4 percent higher at 159.59 yen, after hitting the highest level in the session at 159.62 yen.
The Bank of Japan, at the request of the Japanese Ministry of Finance, spent about 9.8 trillion yen ($61.64 billion) to withdraw the currency from its lowest level in 34 years of 160.245 to the dollar, which it reached on April 29.
Masato Kanda, Japan's chief currency diplomat, said Friday that Tokyo is ready to take more “firm” measures against “excessive volatility and speculation.”
Meanwhile, the dollar held its highest level in almost five weeks against the British pound, which remained steady at $1.2649, near its lowest level since mid-May. The Bank of England kept interest rates unchanged this week, but some policymakers said the decision not to cut was “well balanced.”
Data on Friday showed that UK retail sales rose more than expected in May, largely due to mild weather.
A separate report showed that British business growth slowed to its lowest level in seven months in June, weighed down by tension over the general election scheduled for July 4.
The euro also settled at $1.0697 after a series of preliminary surveys for June showed services sector activity in France contracting this month, while activity slowed across the German economy.
“Overall, the FX market appears reluctant to push for any major moves ahead of the French elections in late June and early July, as this remains the biggest focus for European FX,” said Eric Nelson, macro strategist at Wells Fargo. In particular.” London.
