A strong dollar has caused the yen to fall to a 10-month low and has kept the euro and sterling close to three-month lows. This is due to investors having faith in the resilience of the US economy despite a gloomy global growth outlook. The dollar reached a high of 147.865 yen, the highest since November last year. The dollar also saw gains against a basket of currencies, reaching 104.91, as the US services sector unexpectedly gained momentum in August. As a result, the euro dropped to its lowest point since June at $1.0703 and sterling also hit a three-month low at $1.24835.
Joseph Capurso, head of international and sustainable economics at the Commonwealth Bank of Australia (CBA), commented on the situation, stating that those expecting a recession in the US in the near future might be disappointed. However, a report from the Federal Reserve revealed that US economic growth has been “modest” recently, job growth has been “subdued,” and inflation has slowed in most parts of the country. Despite this, Capurso believes that the strength of the dollar is not due to the US economy performing exceptionally well, but rather it is performing better than other economies.
Market pricing suggests there is a nearly 47% chance of another rate hike by the Federal Reserve in November. However, expectations are that rates will remain unchanged during the upcoming meeting. Bank of England Governor Andrew Bailey has announced that the central bank is nearing the end of its rate-hike cycle, although borrowing costs may still rise due to persistent inflation pressures. ECB policymakers have warned investors that a decision on a rate increase next week is still uncertain, but a rise in borrowing costs is an option on the table.
In Japan, traders are keeping a close watch on intervention as the yen struggles against the dollar. The currency has weakened past the 145 threshold for nearly a month, which was the level that prompted intervention from authorities last year. The Australian and New Zealand dollars have also fallen near their recent 10-month lows. China’s trade figures, which are due later, could put further pressure on the antipodean currencies if they reveal weakness in the second-largest global economy.