The dollar rose against a basket of currencies on Tuesday after new data suggested resilience in the U.S. economy.
The dollar index rose to 106.23, rebounding from a one-month low of 105.35 in the previous session.
U.S. business activity expanded in October, driven by a rebound in manufacturing output and modest growth in the services sector. The manufacturing sector emerged from a five-month contraction, while services activity accelerated amid signs of easing inflationary pressures.
The S&P Global U.S. composite Purchasing Managers Index (PMI) — which tracks manufacturing and service sectors — rose from 50.2 in September to 51.0 in October, its highest since April. It snapped the shallow contraction since May. The figure is also higher than the median expectation among economists polled by Reuters, which was 49.5.
New manufacturing orders increased for the first time in six months in October, reaching their highest level since September 2022. This growth has continued throughout the year despite economists’ expectations that the Fed’s aggressive interest rate hikes would trigger a recession and job losses.
In a positive development for Fed policymakers in their battle against inflation, service-sector input costs rose at their slowest pace in three years. At the same time, service providers raised prices by the smallest margin since the spring of 2020.
However, S&P Global Market Intelligence chief business economist Chris Williamson cautioned that the flare-up in the Middle East conflict could potentially dampen economic growth and fuel inflation despite the recent positive economic data.
The strong dollar has kept the yen near the closely monitored 150 level for another day, with the Japanese currency trading at 149.86 per dollar. The yen has moved sideways over the past month, keeping traders on edge for any signs of intervention by Japanese authorities.
The euro inched up 0.05 percent to $1.0595 against the dollar after a 0.75 percent decline. Meanwhile, sterling increased 0.04 percent to $1.2165.
The New Zealand dollar appreciated 0.08 percent to $0.5849. The Australian dollar jumped more than 0.5 percent after Australia’s inflation data came in higher than expected on Wednesday local time. It was last up 0.35 percent at $0.6378.
Matt Simpson, a senior market analyst at City Index, said the Reserve Bank of Australia would likely hike the country’s cash rate to 4.35 percent during its November meeting.
Europe’s market struggles and rises
While the U.S. economy indicated resilience, there have been rising concerns about a recession in Europe. Business activity unexpectedly dipped in October. The Hamburg Commercial Bank’s flash eurozone PMI fell to 46.5 in October, down from 47.2 in September. This figure is the lowest since November 2020, or during the pandemic.
“The eurozone economy is kind of entering a recession, so this economic playout stiffens expectations that the European Central Bank might have (reached a) peak in interest rates,” said Tina Teng, market analyst at CMC Markets.
The Bank of England will announce its interest rate decision on Thursday next week, following the Fed’s decision on Wednesday. The European Central Bank will hold its meeting this Thursday, and traders expect all three central banks to keep rates unchanged.
Despite the dip, European stocks snapped a five-session losing streak. The Stoxx 600 index closed provisionally 0.4 percent higher, with most sectors and major bourses in positive territory. Mining stocks led the gains with a 2.6 percent increase, while auto stocks shed 0.9 percent.
Banks were one percent lower, with Barclays falling nearly seven percent after posting its third-quarter results.