Strong US Economy Boosts Dollar, Pushes Yen to Lowest Level in 10 Months

The Japanese yen and the U.S. dollar banknotes are facing a 10-month low on Thursday. The euro and sterling are also near three-month lows. Despite a gloomy global growth outlook, investors are placing their trust in the still-strong U.S. economy. China’s lower-than-expected decline in exports and imports in August did not boost investor morale, as they continue to hope for support measures from Beijing to stabilize the economy and restore market confidence.

The dollar reached a new high of 147.875 yen during early Asia trade, its highest since November last year. Against a basket of currencies, the dollar rose by 0.05% to 104.91. It held on to some of its previous gains after reaching a six-month peak, thanks to an unexpected rise in the U.S. services sector in August. The euro was 0.09% lower at $1.0718, hitting its lowest point since June on Wednesday. Sterling slipped 0.06% to $1.2500, also reaching a three-month low in the previous session.

Joseph Capurso, head of international and sustainable economics at the Commonwealth Bank of Australia, commented on the positive reading of the Institute for Supply Management’s U.S. non-manufacturing PMI. He stated that those expecting a U.S. recession in the near future might be disappointed, but the Federal Reserve’s “Beige Book” report showed that U.S. economic growth was only “modest,” job growth was “subdued,” and inflation had slowed down in most parts of the country.

Capurso believes that the strength of the dollar does not stem from the U.S. economy performing exceptionally well, but rather from it doing better compared to other economies. The market expects a more than 40% chance of another rate hike by the Fed in November, but it is anticipated that policymakers will keep rates steady this month.

In contrast, Bank of England (BoE) Governor Andrew Bailey stated that the central bank was close to the end of its rate-hike cycle. However, the European Central Bank (ECB) warned investors that the decision to increase rates is still uncertain, although it is one of the options being considered.

China’s exports in August fell 8.8% from the previous year, while imports contracted by 7.3%. Although these figures were slightly better than expected, they did not significantly impact the Australian dollar and the New Zealand dollar, both of which are near their 10-month lows. These currencies are often used as indicators for the Chinese yuan. The onshore yuan reached a new 10-month low of 7.3252 per dollar.

Traders in Japan closely monitored the yen’s performance against the dollar, as officials increased warnings against a sell-off in the currency. However, the yen struggled to gain ground against the resilient dollar.

Overall, investors are relying on the strength of the U.S. economy despite a pessimistic global growth outlook. They are keeping an eye on China’s economic data and hoping for support measures from Beijing. The market is anticipating monetary policy decisions from the central banks of the U.S., the UK, and the eurozone.