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HomeLatestDollar Strengthens on U.S. Business Activity Boost
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Dollar Strengthens on U.S. Business Activity Boost

The dollar strengthened against the euro following the release of data indicating a surge in U.S. business activity, signaling a potential acceleration in economic growth midway through the second quarter.

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According to S&P Global, its flash U.S. Composite PMI Output Index, which monitors both the manufacturing and services sectors, surged to 54.4 this month, marking the highest level since April 2022. This robust figure, compared to April’s final reading of 51.3, suggests expansion in the private sector, with a reading above 50.

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“The market’s response to strong U.S. economic data remains consistent,” remarked Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. “I anticipate further upward movement for the dollar.”

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Additional data released on Thursday revealed a decrease in the number of Americans filing new claims for unemployment benefits, indicating ongoing strength in the labor market, which should bolster economic stability.

During their recent policy meeting, Federal Reserve officials expressed confidence in the gradual alleviation of price pressures in the coming months. However, doubts emerged regarding the sufficiency of current interest rates to ensure this outcome, with “various” officials suggesting readiness to increase borrowing costs if inflation surges.

“The market is still overestimating the likelihood of two rate cuts this year, according to FOMC comments,” Chandler noted, underscoring that this expectation adjustment would uphold the dollar’s strength in the short term.

Against the euro, the dollar edged up by 0.2% to $1.080525. Earlier in the session, the euro had climbed to $1.0861 following the release of the preliminary composite Purchasing Managers’ Index for the eurozone, which remained above the growth threshold for the third consecutive month, signaling a recovery even in struggling manufacturing sectors.

Meanwhile, the pound dipped by 0.2% to $1.2689 against the dollar as Prime Minister Rishi Sunak called a national election, widely anticipated to result in a Labour Party victory after 14 years of Conservative rule. However, sterling options volatility for the period encompassing the July 4 election registered an increase.

Elsewhere, the dollar gained 0.1% against the Japanese yen, reaching 156.91 yen, as data indicated Japan’s factory activity entering expansion territory for the first time in a year.

In the cryptocurrency realm, ether surged by 1% to $3,776, hitting its highest level since mid-March, amidst speculation surrounding the potential approval of U.S. spot exchange-traded funds tracking the world’s second-largest cryptocurrency.

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