Karen Brettell
NEW YORK (Reuters) – The dollar rose to a six-week high on Thursday as data showed a still solid U.S. economy ahead of Friday’s closely watched jobs report, while safe-haven demand comes amid worries about rising tensions in the Middle East and the impact of the longshoreman’s strike also strengthened the currency.
The dollar additionally benefited from more dovish central bank expectations for other currencies, including the euro, sterling and yen.
Thursday’s data showed U.S. service sector activity rose to its highest level in a year and a half in September amid forceful growth in modern orders, although a measure of employment in services fell, consistent with a slowdown in the labor market.
“Today is an example of how quickly the U.S. dollar can recover,” said Juan Perez, chief trading officer at Monex USA in Washington. While Thursday’s numbers were “a bit on the high side,” he said the United States remains the envy of other countries.
Other data on Thursday showed that the number of Americans filing modern claims for unemployment benefits increased slightly last week, but the raging Hurricane Helene in the southeastern United States and strikes at Boeing (NYSE:) and ports could distort the picture of the labor market in the near term.
It was last up 0.33% at 101.98 to hit 102.09, its highest level since August 19. On September 27, it hit a 14-month low of 100.15.
“The dollar has started to gain ground this week… part of it is just a situation where markets are trying to ride out a lot of headwinds,” said Vasily Serebryakov, currency and macro strategist at UBS in New York.
Improving macroeconomic data and more hawkish comments from Federal Reserve Chairman Jerome Powell on Monday reduced expectations that the Fed would cut interest rates by another 50 basis points at its November 6-7 meeting.
Friday’s September jobs report is another significant U.S. economic release that could influence Fed policy. Economists polled by Reuters expect 140,000 jobs, while the unemployment rate will remain steady at 4.2%.
“The U.S. data was a bit stronger, which probably makes the market a bit more cautious about selling the dollar ahead of the non-farm payrolls report,” Serebriakov 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 the security offer since Israel was attacked by Iran on Monday in a strike that raised fears that the oil-producing Middle East could be engulfed in a wider conflict.
Oil prices rose on Thursday on concerns that oil flows from the region could be disrupted. Asked on Thursday whether he would support an Israeli attack on Iranian oil facilities, US President Joe Biden told reporters: “We are discussing it.”
Long lines of container ships also appeared outside major U.S. ports on Thursday as the biggest longshore strike in nearly half a century entered a third day, preventing unloading and threatening shortages of everything from bananas to auto parts.
“The US dollar is a safe haven in the midst of chaos,” Perez said. “In the post-pandemic world, the most important question was: Can we rebuild healthy supply chain logistics? And this headline news completely destroys that stability and health.”
The euro fell on rising expectations that the European Central Bank will cut interest rates at its October 17 meeting as inflation falls.
It fell 0.17% to $1.1026 and hit its lowest level since September 12 at $1.1008.
Sterling fell after Bank of England Governor Andrew Bailey said the British central bank could move more aggressively to cut interest rates if inflation pressures continue to ease.
The British pound was last down 1.15% at $1.3114, hitting $1.3093, its lowest level since September 12.
The dollar also hit a six-week high against the yen after Bank of Japan board member Asahi Noguchi said Japan’s central bank must move carefully and slowly to avoid harming the economy.
The ruling came after Prime Minister Shigeru Ishiba said on Wednesday that Japan was not in the mood for an additional interest rate boost.
The dollar was last up 0.27% at 146.85 and had previously hit 147.25, the highest since August 20.
In cryptocurrencies, bitcoin fell 0.36% to $60,687.91.
