Dollar up after release of good economic data
2023.01.24 13:28
Dollar up after release of good economic data
By Kristina Sobol
Budrigannews.com – On Tuesday, data showed that U.S. business activity contracted for the seventh consecutive month in January, but there were signs that the downturn was slowing down. This resulted in a rise in the dollar against the euro.
While U.S. business activity decreased in January, the downturn moderated for the first time since September in both the manufacturing and services sectors, and business confidence increased as the new year began.
“It just appears to be yet another piece of data demonstrating the message that the Fed has been preaching: Juan Perez, director of trading at Monex USA in Washington, stated, “The economy is resilient enough to take on more hikes.”
Before the Federal Reserve begins cutting interest rates later this year, Fed fund futures anticipate only two more quarter-point rate increases to a peak of approximately 5% by June. The Federal Reserve has insisted that further increases of 75 basis points are still planned.
Perez stated, “Looking at PMIs, it is clear that the Fed has prevented expansion, but the economy has not taken a hit like many thought.”
The dollar strengthened against the euro, but it remained close to the previous session’s lows for the ninth month. The euro was 0.17 percent lower at $1.0852, just shy of Monday’s 9-month high of $1.0927.
Analysts stated that data from the euro area on Tuesday supported the view that the economy was reasonably surviving a winter of intense price pressures. This led to support for the euro throughout the day.
Business activity in the Eurozone unexpectedly returned to modest growth in January, according to surveys, and service sector activity in Germany expanded for the first time since June, despite persistent price pressures.
The European Central Bank (ECB) may be able to tackle inflation more aggressively if the economy is stronger.
Michael Brown, a market strategist for TraderX, stated, “There is probably enough in there to cement another 50 basis points in increases from the ECB.”
The dollar’s rise to a near-weekly high against the yen was aided by data on business activity in the United States. At the time of writing, the yen was up 0.03% to 130.7 yen.
In advance of a Bank of Japan policy review at which investors bet the central bank might signal the end of its stimulus program, the dollar fell to as low as 127.215 yen, its weakest level since May. However, the BOJ did not change its policy, which gave the dollar some breathing room.
After a survey revealed that British private-sector economic activity fell at its fastest rate in two years in January, sterling was one of the major currencies that performed poorly against the dollar, falling 0.71 percent on the day to $1.2288.
Simon Harvey, head of FX Analysis at Monex Europe, stated, “Looking forward, we expect sterling to start underperforming neighboring European currencies as economic data highlights widening growth differentials.”
In the meantime, investors shook off pessimism following the well-publicized collapse of the FTX crypto exchange, and bitcoin was little changed on the day at $22,878, stabilizing after having risen by about a third since the beginning of January.
