By Herbert Lash and Alun John
NEW YORK/LONDON, Sept 6 (Reuters) – The dollar marched higher on Tuesday after an August report on the US services industry reinforced views that the economy was not in recession, while the euro and interest-sensitive Japanese yen continued to slide.
The Dollar Index = US dollars rose 0.557% after the Institute for Supply Management said its non-manufacturing PMI rose to 56.9 last month from 56.7 in July, the second straight monthly increase after three months of declines.
Growth in services followed last week’s ISM manufacturing survey, which showed US factory activity grew steadily in August, in contrast to other major economies.
“People are realizing the US economy is slowing down, but it’s still the least ugly of the competition,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
As the dollar moves up the path of least resistance, its strength will be challenged next week when the August US CPI is released, Chandler said.
“The early call is for a month-on-month headline rate decline,” he said. “But the core rate will be stickier.”
The British pound and euro attempted to recover from multi-year lows against the dollar hit on Monday.
Central bank interest rate hikes attract public attention Forex Marketswith the Bank of Japan emerging at the Jackson Hole symposium as the only one remaining committed to keeping monetary policy accommodative, HSBC said in a note.
The correlation of the dollar-yen exchange rate with US yields has almost recovered to its strongest level since the start of the year, HSBC said. The bank revised its forecast for the pair to 144 at the end of the third quarter from a previous 140.
The yen continued to weaken, falling 1.48% to 142.71 per dollar. The dollar is up 24% against the Japanese currency so far this year.
The 10-year US Treasury yield as a benchmark US10YT=RR rose 14.1 basis points to 3.332%. US/
In contrast, the yield on 10-year Japanese government bonds JP10YT=RR was 0.24% due to the BOJ’s yield curve control policy.
The sterling and the euro have earlier appreciated against the dollar and the pound EUR=D3 up 0.04% to $1.1528. The Euro EUR= down 0.26% to $0.99.
Britain’s new Prime Minister Liz Truss is considering a freeze on household energy bills to try to stave off a wintry cost-of-living crisis for millions of households, Reuters reported on Monday.
European Union ministers will meet on September 9 to discuss urgent bloc-wide measures to respond to a surge in gas and electricity prices hitting European industry and driving up budget bills after Russia cut gas supplies throttled the block.
The Australian Dollar CHF=D3 fell to a seven-week low after the Reserve Bank of Australia hiked interest rates by 50 basis points, but signaled it was not on a preset path for future rate hikes.
In China, authorities’ efforts to slow the yuan’s recent depreciation proved unsuccessful for the yuan CNH = EBS Slip to fresh 2 year low 6.9784 in offshore trading.
China’s central bank lowered the foreign exchange reserve ratio (RRR) late Monday, freeing up dollars for banks to sell.
Currency bid prices at 10:54 (1454 GMT)
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(Reporting by Herbert Lash, additional reporting by Rae Wee in Singapore, editing by Shri Navaratnam, Sam Holmes, Ed Osmond and Tomasz Janowski)
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