The U.S. dollar retreated slightly on Thursday but was still set for a weekly increase.
The dollar index declined by 0.40 percent for the day, hitting 106.21, slightly below Wednesday’s 10-month peak of 106.84. Nevertheless, the currency is still set for its 11th consecutive week of gaining.
The anticipation of an improved U.S. economy drove the dollar’s recent rally. The Federal Reserve recently warned that it might implement additional rate hikes and maintain them at higher levels for an extended period in response to the economic situation.
“The dollar in this environment is benefiting from both higher yields but also more jittery risk sentiment. Global yields are rising, but with the U.S. economy outperforming the U.S. dollar still looks attractive,” said Vassili Serebriakov, an FX strategist at UBS, as quoted by Reuters.
Data released on Thursday indicated that the U.S. economy sustained robust growth in the second quarter, remaining unchanged at an annualized rate of 2.1 percent.
Another report showed that initial claims for state unemployment benefits had increased by 2,000 to reach 204,000 for the week ending on September 23. This figure was slightly below economists’ forecast of 215,000 claims for the same week.
Conversely, contracts for purchasing existing U.S. homes declined more than anticipated in August. It marked the most significant drop in nearly a year, primarily due to rising mortgage rates impacting affordability.
Chicago Fed President Austan Goolsbee cautioned that the Fed could be on the verge of achieving an “unusual feat.” Goolsbee said the Fed could reduce inflation without harming employment and economic growth. He stressed the importance of not relying too much on historical strategies when planning future policy decisions.
Yen, euro inch up
Meanwhile, the dollar declined against the Japanese yen by 0.27 percent to 149.23. On Wednesday, the greenback hit an 11-month high of 149.71 yen.
The yen remains in focus as it hovers around the 150 level, which analysts say may prompt intervention from Japanese authorities. Investors stay watchful for possible intervention as the yen lingered near 11-month lows against the U.S. dollar.
Japan allocated over 9 trillion yen — equivalent to $60.88 billion — in currency market interventions last year to halt the yen’s depreciation. This involved purchasing yen during September and October.
Takehiko Nakao, the former chief currency diplomat, told Reuters last week that Japan might consider intervening again to bolster the yen. He also said it was a good time for the Bank of Japan (BoJ) to consider ditching its highly accommodative policy.
On Thursday, Japanese Finance Minister Shunichi Suzuki emphasized that the country was open to considering all available options in the event of excessive currency volatility. He warned against speculative movements in the yen amid its decline.
Elsewhere, the euro experienced a 0.50 percent increase for the day, reaching $1.0554 and remaining close to its January low of $1.0482.
“If that (January low) goes, then we could go a bit closer to euro/dollar parity, but our base case scenario is that unless there’s another negative shock for Europe, then that won’t be sustained,” said MUFG senior currency analyst Lee Hardman.
Hardman said the euro’s decline could be attributed, in part, to the strengthening dollar driven by increased U.S. yields. He pointed out the “cyclical divergence story,” where the U.S. economy showed more resilience than the European economy, contributing to the euro’s weakening.