The dollar remained strong on Tuesday due to upbeat US economic data, suggesting that the Federal Reserve will maintain higher interest rates for an extended period. This pushed the yen closer to a level where intervention might occur. The euro also fell below January’s bottom of 1.0482 against the US dollar, as manufacturing surveys reported in both Europe and the US on Monday showed the difference between the two economies.
The dollar index climbed 0.5% to 107.06, reaching a high of 107.12 at one point, its best since November 2022. According to a poll released on Monday, US manufacturing took another stride toward recovery in September as production increased and employment increased. Prices paid by manufacturers also fell significantly. Growing US Treasury yields also helped the dollar, as better-than-expected economic data supported Fed rate hikes for the foreseeable future, while a last-minute deal to avoid a government shutdown decreased demand for US debt.
A slew of robust economic data in recent weeks has boosted hopes that the Fed will keep rates high for a longer period, with various policymakers warning of the potential for further tightening if inflation doesn’t slow down as predicted. According to Carol Kong, economist and currency strategist at the Commonwealth Bank of Australia, the selloff of US Treasury bonds is the “talking point” of financial markets, and it is expected to continue as long as US economic data remains good.
“Tonight’s US JOLTS job openings and non-farm payrolls on Friday can be a catalyst to push up US yields and the USD if they surprise to the upside.” The dollar’s advance has pushed the yen closer to the psychologically critical 150-level, which markets see as a line in the sand for Japanese authorities that could prompt intervention, as it did last year.
“Given the warnings from Japanese officials, we would not be surprised if the BoJ intervenes soon to prop up the JPY,” Kong added. Japan’s senior economic ministers cautioned again on Monday that the yen’s fall was being watched with a “strong sense of urgency” by authorities. The yen was last trading at 149.80 per dollar, slightly off the overnight low of 149.88.
The euro sank to as low as $1.0462 in the Asian morning, its lowest level since December of last year, as a poll of euro zone PMIs revealed on Monday that demand continued to contract at a rate rarely exceeded since the data was first compiled in 1997. The pound was recently trading at $1.20790, its lowest level since March 16.
The Australian dollar stayed relatively unchanged ahead of the Reserve Bank of Australia’s rate decision later in the day. According to a Reuters survey of analysts, Australia’s central bank will maintain its key interest rate at 4.10 percent, but another raise with a peak cash rate of 4.35 percent is expected next quarter if inflation remains above goal.