US Dollar Index Rises on Positive Jobs Data
The US dollar index (DXY) opened higher today at around 102.59 following a slight increase on Wednesday. The rise in the index can be attributed to better-than-expected private jobs data for July, providing upward support for the dollar.
Despite the gradual slowdown in the US labor market after the Federal Reserve’s interest rate hikes earlier this year, the economy remains strong. The Atlanta Fed’s GDPNow projects a real gross domestic product growth of 3.9% for the third quarter. Michael Arone, chief investment strategist at State Street Global Advisors in Boston, believes that the dollar’s gains are a result of continued strong economic data, which indicates that the Fed may continue to raise interest rates. This gap in interest rates compared to other countries is causing the dollar to rebound and reflects a certain level of risk aversion.
In a surprising move, Fitch downgraded the US rating from AAA to AA+ on Tuesday. This decision drew an angry response from the White House and shocked the markets, even though the US debt ceiling crisis had been resolved two months ago. Fitch pointed out that the US fiscal situation may deteriorate in the next three years, and repeated last-minute delays in debt ceiling negotiations could threaten the government’s ability to pay its bills. However, Goldman Sachs noted that the downgrade did not include new fiscal information and does not expect any significant holders of US Treasuries to sell their bonds as a result.
Yesterday, the American automatic data processing company ADP announced that the number of employed persons in July rose sharply to 324,000. This was higher than the predicted increase of 189,000 by survey economists, indicating a significant growth in the labor force’s employment population.
Looking ahead, the upper resistance levels for the US dollar index are at 102.50 and 102.90, while the lower support level is at 102.10.
Euro Weakens Against British Pound
The euro (EUR) fell back to around 0.8606 against the British pound (GBP) at the opening of the session on Wednesday. Market positioning and uncertainty regarding the European Central Bank’s policy outlook suggest that the euro may continue to trade weak in the short term, driven by the strength of the US dollar following positive labor market data.
The euro has been under pressure recently due to better-than-expected US ADP employment numbers, which may lead the Federal Reserve to consider raising interest rates again this year. The market also remains uncertain about the Bank of England’s interest rate decision on Thursday, whether it will be a 25 or 50 basis point increase from the current 5%.
Yesterday, Spain’s unemployment data for June showed improvement with a decrease of 11,000 (-0.41% monthly rate), indicating growth in the country’s labor market. This followed strong employment data from Germany on Tuesday. European Central Bank President, Christine Lagarde, emphasized the strength of the labor market and mentioned that new data will be considered for the next interest rate decision, fueling market expectations of a hawkish stance by the ECB. Additionally, the number of international tourists in Spain increased to 11.5 million in June, indicating significant growth in the tourism industry.
From a technical standpoint, the upper resistance levels for EUR/GBP are at 0.8600 and 0.8640, while the lower support level is at 0.8570.
Disclaimer: The above article is for reference only and should not be considered as future investment advice. The content is based on international financial data reports and news from CPT Markets.