The Dollar Swelled After Data Showed a Brighter Forecast for US Business Activity
The dollar climbed against the euro on Tuesday as statistics revealed that US corporate activity contracted for the seventh consecutive month in January, although there were hints that the decline was slowing.
While business activity in the United States fell in January, the decline in both the manufacturing and service sectors softened for the first time since September, and company confidence increased as the new year began.
"It just appears to be another piece of evidence demonstrating what the Fed has been preaching: the economy is sturdy enough to withstand more rises," said Juan Perez, director of trading at Monex USA in Washington.
Fed fund futures anticipate only two more quarter-point rate rises to a peak of roughly 5% by June before the Fed begins lowering rates later in the year. The Federal Reserve has stated that it still has 75 basis point hikes in the works.
"It is apparent from PMIs that the Fed has stifled expansion, but the economy has not suffered as many predicted," Perez added.
The dollar extended its recovery versus the euro, but it remained close to 9-month lows set the day before. The euro was 0.17% weaker at $1.0852, barely shy of Monday's 9-month peak of $1.0927.
The euro remained supported throughout the day as eurozone statistics on Tuesday confirmed that the economy was weathering a winter of high pricing pressures pretty well, according to economists.
According to surveys, eurozone business activity unexpectedly returned to small growth in January, while service-sector activity in Germany rose for the first time since June, despite persistent pricing pressures.
A stronger economy may allow the ECB to hike interest rates more aggressively to combat inflation.
"There is enough in there to secure another 50 basis point hike from the ECB," said Michael Brown, market strategist at TraderX.
The statistics on US economic activity helped push the dollar to a near one-week high versus the yen. The US dollar was recently up 0.03% to 130.7 yen.
The dollar sank to as low as 127.215 yen last week, its lowest level since May, ahead of a Bank of Japan policy review in which investors expected the central bank to announce the end of its stimulus program. The BOJ, on the other hand, kept policy unaltered, providing some relief to the dollar.
The British pound was one of the worst-performing major currencies versus the dollar, sliding 0.71% on the day to $1.2288 after a poll revealed that private-sector economic activity in the United Kingdom declined at the sharpest rate in two years in January.
"In the near term, we expect sterling to begin underperforming surrounding European currencies as economic data reveals expanding growth differentials," said Simon Harvey, head of FX Analysis at Monex Europe.
Meanwhile, bitcoin barely changed on the day at $22,878, having risen by almost a third in value since early January as investors recovered from the high-profile collapse of the FTX crypto exchange.