The dollar made a slight advance on Thursday as investors exercised caution due to less robust economic data, which clouded the interest rate outlook prior to the Federal Reserve’s Jackson Hole symposium. Meanwhile, the Turkish lira awaited a central bank rate decision.
The dollar index, a measure of the dollar’s strength against a basket of major currencies, increased by 0.15% to reach 103.50. This uptick followed a decline on Wednesday and was indicative of a potential monthly gain.
Wednesday witnessed the steepest one-day drop in 10-year U.S. yields in over three months, spurred by data revealing that U.S. business activity growth in August had weakened to its lowest level since February. This data suggested a potential slowdown in the economy.
Across the Atlantic, surveys indicated that Europe’s manufacturing output was continuing to contract, and services activity was also declining. This situation cast a shadow over the euro, which saw a dip of 0.07% to $1.0857.
In the UK, factory output experienced a significant slump, raising concerns about a looming recession. Consequently, the pound fell by 0.3% to $1.2703.
Moh Siong Sim, a currency strategist at Bank of Singapore, pointed to the PMI data as an indicator that the global economic outlook might not be as promising as hoped. This, in turn, could lead central banks in developed markets to exercise caution regarding further tightening.
Market participants adopted a cautious approach, anticipating possible surprises in Fed Chair Jerome Powell’s address at the Jackson Hole Symposium on Friday.
Isabel Albarran, Investment Officer at Close Brothers Asset Management, remarked that as the symposium commenced, market players sought direction. The discourse could highlight stronger-than-expected data, potentially indicating ongoing inflation concerns. Conversely, focus on a cooling labor market, weak PMIs, and a downward-trending CPI might imply that interest rates are nearing their peak.
