Despite a drop in job postings last month to the lowest level in little than two years, the dollar rose versus major currencies on Tuesday on the back of relatively strong data on U.S. manufacturing and construction. While an ISM poll painted a bleak picture of the state of the American manufacturing sector, “hard data” suggests otherwise. In the second quarter, manufacturing output increased, reversing a trend of two consecutive quarterly reductions, according to Federal Reserve data released in June. Meanwhile, the Commerce Department said that construction spending in the United States rose sharply in June and that data for May was revised upward, thanks to increases in spending on both single-family and multifamily homes.
In spite of the Federal Reserve’s massive interest rate hikes meant to depress demand and limit inflation, the monthly JOLTS data from the Department of Labor remained consistent with tight labor market conditions. Following the news, the dollar fell but has since recovered. “The net between the slightly more positive ISM and the slightly less favorable JOLTs numbers, you wind up in an environment the market doesn’t know what to do,” explained Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC. While “the ISM numbers are really net neutral to slightly more constructive,” “the reality is the offset in the JOLTs numbers with the continued high levels of openings in terms of what we got in terms of the quit rate,” he explained. The dollar index, which tracks the value of the dollar relative to the other six major currencies, increased by 0.412%.
The Australian dollar dropped substantially after the Reserve Bank of Australia left cash rates unchanged, and the Japanese yen dropped to a three-week low after the Bank of Japan made adjustments to its yield curve control strategy. Following the central bank’s decision to keep interest rates unchanged at 4.1% for a second month, the Australian dollar was poised for its steepest daily decline in a month on the belief that further tightening may be necessary to limit inflation. At its lowest point against the dollar (at $0.661), the Australian dollar lost 1.65% of its value, wiping out July’s 0.87% gain and setting up the currency for its largest daily loss since early March. Natixis Investment Managers’ portfolio managers expressed concern that a major central bank’s de facto tightening could have a negative impact on risk appetite around the world. At 143.33 USD, the yen has dropped 0.74 percent. Since last Friday, when the Bank of Japan announced it will offer to buy 10-year Japanese government bonds at 1.0% in fixed-rate operations, up from the previous rate of 0.5%, the Asian currency has been on a roller coaster ride. According to Carlos Casanova, senior Asia economist at UBP in Hong Kong, “Markets could test just how ‘flexible’ the BOJ will be in the months ahead,” since the small modifications showed the BOJ may be gearing up to revise the YCC target in 2023.
With global GDP weakening and China’s economy showing signs of instability, private surveys have shown that factory activity in Asia dropped in July. China’s industrial activity dropped for the first time since April, according to the Caixin/S&P Global purchasing managers’ index (PMI). At $1.097, the euro was down 0.21%. Inflation in the euro area fell further in July, and economic growth in the region resumed at a faster clip than predicted in the second quarter of 2023, leading markets to price in a pause in ECB rate hikes. If the positioning doesn’t change, the euro/dollar will continue to fall. However, something needs to happen to increase confidence in another 25bp ECB move. Unless U.S. data this week is terrible enough to have people talking about when the Fed will start easing again,” wrote Kit Juckes, chief global FX strategist at Societe Generale, in a note to investors. On the day, the pound had lost 0.65% of its value, closing at $1.2753. The likelihood that the Bank of England will raise interest rates by 25 basis points on Thursday has risen to 60%, according to money market analysts.
Bid rates on major currencies as of 11:08 AM EDT (1508 GMT) RIC Description High Low Last U.S. Closing Change YTD Prior Modification Dollar index during session 102.2900 Exchange Rate: Euro/Dollar: 101.8900 +0.41% -1.160% +102.4300 +101.8400 Dollar/Yen 1.0972 1.0997 -0.22% +2.40% +1.1003 +1.0952 Euro/Yen Exchange Rate: 143.3400 142.27.00 +0.75% 9.33% 143.4600 142.2150 The USDCHF exchange rate was 157.28 156.45 +0.53% +12.10% +157.4100 +156.4300 Dollar/Sterling: 1.2753 1.2835 -0.63% +5.46% +$1.2840 +$1.2751 Euro/Sterling: 0.8758 0.8720 +0.44% -5.29% +0.8777 +0.8715 Exchange Rate: AUD$1.3283 USD$1.3189 +0.72% -1.96% +1.3300 +1.3188 Euro/Swiss Franc: $0.6610 $0.6719 (-1.60 3.1%) +$0.6723 +$0.6606 Euro/Pound Sterling: 0.9607/0.9587 (+0.21%) -2.91/+0.9624/+0.9578 0.8603 0.8565 +0.44% -2.73% +0.8606 +0.8551 NZ Dollar/Norwegian Krone: $0.6140 $0.6210 -1.5% 3.2% +$0.6217 +$0.6137 Euro/Norwegian Currency Quote: 10.1990 10.0950 +0.99% +3.88% +10.2480 +10.1370 Dollar/Swedish Krona: 11.1954 11.1382 +0.51% +6.69% +11.2320 +11.1271 European Currency Unit (EUR)/Swedish Krona (SEK): 10.6065 10.5178 +0.59% +1.91% +10.6422 +10.5190 11.6381 11.5702 +0.59% +4.38% +11.6580 +11.5685.
