The dollar strengthened on Tuesday despite briefly hitting a one-month low, as weak economic data from the euro zone caused the euro to slide. This followed a survey that revealed a downturn in business activity across the region, raising concerns of a potential recession. The euro experienced a reversal and ended up 0.43% lower at $1.0624, after briefly trading 0.1% higher at $1.0684. Germany’s data was particularly bleak, with both the manufacturing and service sectors showing contraction. As a result, the dollar index, which measures the U.S. currency against major peers, saw a boost and was up 0.33% at 105.95, reaching its highest level since September 22.
Jane Foley, the head of FX strategy at Rabobank, stated that the weaker state of the euro zone and German economies, when compared to the United States, would likely limit any significant declines in the dollar. She cited various factors, including a slowdown in China, higher energy costs, and demographic issues, as contributing to the current economic woes.
Global financial markets have been closely monitoring the surge in U.S. bond yields, which reached their highest level since July 2007 on Monday. However, yields dropped sharply later in the day, possibly triggered by a social media message from hedge fund investor Bill Ackman, who revealed that he had closed out his bet against longer-dated bonds due to geopolitical concerns. The relationship between bond yields and the dollar index is inversely proportional, with yields rising as prices fall.
The Japanese yen also experienced fluctuations against the dollar, ultimately settling near the 150 mark, which tends to make traders nervous about potential government intervention to stabilize the currency. The yen had initially traded lower against the dollar earlier in the session. Market analysts believe that the yen will be particularly sensitive to upcoming U.S. economic data, as it could cause Treasury yields to surpass the key resistance level of 5%.
Meanwhile, the Swiss franc, considered a safe-haven asset, gained ground in recent days due to the conflict between Israel and Hamas. The franc rose 0.29% against the dollar, reaching 0.8935 francs. In the UK, the pound declined by 0.3% against the dollar, reaching $1.2212, following the release of data that indicated a slight slowdown in the country’s labor market during the three months leading up to August.
The Bank of England is scheduled to announce its interest rate decision next Thursday, following the Federal Reserve’s decision on Wednesday. Traders are expecting all three central banks, including the European Central Bank, to maintain steady interest rates. In the cryptocurrency market, bitcoin continued its ascent in Asian trading hours, reaching $35,198, the highest level since May 2022. Speculation surrounding the imminent launch of an exchange-traded bitcoin fund contributed to the surge in prices.
Overall, the dollar’s rise and the decline in the euro can be attributed to weak economic data from the euro zone, particularly Germany. Market experts anticipate further volatility in bond yields and currency markets due to upcoming U.S. economic data releases. Traders are closely monitoring events such as the interest rate decisions of the Bank of England and the Federal Reserve, along with the European Central Bank’s meeting outcome.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )