Dollar hits 20-year high as data backs aggressive Fed

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NEW YORK – The dollar index hit a 20-year high on Thursday and hit a 24-year high against the rate-sensitive Japanese yen after U.S. data showed a resilient economy, giving the Federal Reserve more leverage. room to aggressively raise interest rates. to curb inflation.

The U.S. currency strengthened after a government report showed the number of Americans filing new claims for unemployment benefits fell further last week, in line with strong demand for workers and tight labor conditions. labor market.

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The report also showed fewer layoffs in August, despite steep interest rate hikes by the Fed to counter decades-high inflation, which raised the risk of a recession.

Data from the Institute for Supply Management (ISM) showed the U.S. manufacturing industry rose steadily in August as employment and new orders rebounded, while further easing price pressures bolstered inflation. opinion that inflation has probably peaked.

“It’s no surprise the dollar hit a new all-time high on both safe-haven flows from global economic weakness and the resilience of the U.S. economy paving the way for the Fed to remain aggressive,” said Edward Moya, chief market analyst at Oanda. .

“The king of the dollar woke up from a nap and it could be a lot more painful for European currencies,” he said.

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The U.S. dollar index, which measures the greenback against a basket of six currencies, rose 0.671% to 109.59 as of 3:10 p.m. Eastern Time (1910 GMT) after touching 109.99. , its highest since June 2002.

Expectations of a third consecutive 75 basis point U.S. rate hike at the Sept. 20-21 Fed meeting are rising amid strong economic data, with fed funds futures last indicating about 77.1% chance of such an increase.

That helped push the benchmark 10-year US Treasury yield to a more than two-month high of 3.297.

Market attention will now turn to August’s U.S. nonfarm payrolls report, due Friday, which will be one of the key data points guiding Fed members as they meet. later this month.

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A strong reading could help the safe haven dollar attract more demand.

“Even after hitting new highs, dollar strength still has room, boosted by the global slowdown and the European energy crisis in particular,” analysts at Generali Insurance Asset Management said.

The euro slipped 0.99%, falling back below parity against the dollar at $0.9953, while the pound hit a fresh 2.5-year low at $1.1501 and fell for the second half. last time around 0.69%.

Manufacturing activity in the eurozone shrank for a second month in August, a survey showed, and although European energy costs fell slightly this week, they remain at very high levels.

The Japanese yen slipped as high as 140.23 yen to the dollar, its lowest level since 1998. The dollar was last up 0.81% at 140.095 yen.

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“The main driver remains Japan-US rate differentials, and even today’s price action is just following the overnight rise in US rates. We believe the way forward will depend on the behavior of US rates,” said Sosuke Nakamura, strategist at JPMorgan in Tokyo.

The risk-sensitive Australian and New Zealand dollars also sold off on the transition to safe-haven assets and hit their lowest levels since July.

The Aussie was last down 0.89% at $0.67825 and the Kiwi was down 0.83% at $0.6069.

Bitcoin, which is also trading in line with risk sentiment, fell 1.17%, trading slightly below $20,000.

(Reporting by John McCrank in New York; additional reporting by Kevin Buckland in Tokyo and Rae Wee in Singapore; Editing by Bernadette Baum, Susan Fenton and Jonathan Oatis)

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