The U.S. dollar kept on a Jackson Hole roll, clocking fresh multiweek highs. America’s firmer buck was on track to cross the August finish line ahead of nearly all of its major and emerging market peers. Markets taking a bit more seriously the notion of the Federal Reserve raising interest rates this year is at the heart of the dollar’s upturn since Friday when the Fed chair offered hawkish hints on the policy outlook at a bankers’ summit in Wyoming. The U.S. economy, meanwhile, appears in better shape after a run of good news on America’s main growth engine: the consumer. Still, for the dollar to get meaningful mileage out of its upturn, U.S. jobs numbers Friday would have to signal an economy in rate hike ready shape. The U.S. dollar was at or near three-week peaks against the euro and loonie, and scored a one-month high against the yen.
The euro flirted with three-week lows against its rebounding U.S. counterpart, on pace to finish August with modest losses after ending July around 1.1170. The 19-nation economy didn’t do the euro any favors Wednesday as numbers on inflation and unemployment failed to register improvement that was expected. Unemployment remained at a high 10.1 percent for July while a preliminary snapshot of inflation held steady at a paltry 0.2 percent annual rate in August, showing the ECB’s current stimulus settings, while lavish, slow to bear fruit which keeps pressure on the bank to do more in coming months.
Goods news on America’s job market today threw another log on the dollar’s rally. Payrolls company ADP reported a gain of 177,000 private payrolls in August, a few thousand better than forecast. Moreover, the reading for July got upgraded by 15,000 to 194,000. The report sometimes serves as a barometer of how nonfarm payrolls might fare so at the margin the better than expected outcome suggested a lower risk of a disappointment on Friday.
Sterling was an outlier against an otherwise firmer U.S. dollar, managing a gain in end-of-month trade. Data showing the U.K. economy weathering so far Britain’s decision to ditch the EU buoyed the pound and helped reduce the chance of an imminent rate cut by the country’s central bank. Consumer optimism improved more than expected to -7 in August from -12 in July, while a gauge of home prices unexpectedly appreciated. GBPUSD was on track for a losing month, having ended July above 1.32.
The loonie remained pinned near a three-week bottom after data confirmed Canada’s economy went backward last quarter and at the fastest rate in seven years. Canadian growth contracted at an annual rate of 1.6 percent during the spring quarter after an upwardly revised 2.5 percent pace of growth during the first quarter. In a hopeful sign however, the economy appeared to close out the quarter in better shape as growth data for June increased by 0.6 percent. Upside for the loonie looks limited with oil down a percent and below $46, and given the risk that Friday’s U.S. jobs report could put an imminent Fed rate hike in play.
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