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US dollar strengthens on services sector growth

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US dollar strengthens on services sector growth

The US dollar strengthened after the service economy expanded for a 46th consecutive month in October. The closely monitored non-manufacturing PMI index, courtesy of the Institute for Supply Management, rose one percentage point to 55.4, exceeding forecasts. Expansion in the services sector raised optimism concerning the economy’s growth prospects, as business activity and hiring continued to grow amid the government shutdown.

The US dollar gained 0.2 percent against a basket of its major peers, sending the dollar index to 80.72. In North America, the greenback took advantage of an idle Canadian dollar, gaining 28 pips to 1.0455. Idleness has hurt the loonie over the past week, as market participants look for signs the Canadian economy is still on track.

Down under, the US dollar pushed back against the Aussie’s recent gains. The Australian dollar declined 21 pips against the greenback—one day after strong retail sales boosted the AUDUSD trade.

The dollar strengthened against its commodity-driven rivals, but was demonstrably weaker against other safe havens. In Europe, pound sterling soared 80 pips after the UK service economy expanded at the fastest pace since May 1997. The GBPUSD hit a session high of 1.6063 in Europe before consolidating at 1.6040. Elsewhere in Europe, the common currency gained 40 pips after European Central Bank President Mario Draghi reassured markets the euro area is still on the path to recovery.

Elsewhere, the Japanese yen maintained pressure on the greenback, as market watchers eye the minutes from the latest Bank of Japan policy meetings. BOJ Governor Haruhiko Kuroda expressed confidence the central bank would reach its 2 percent inflation target by 2015. Japan’s core CPI rose at an annualized rate of 0.7 percent in September.

The US dollar index has gained more than 1.3 percent in the past five days. The world’s most heavily traded currency will face scrutiny later this week when government economists release official data on third quarter GDP and October nonfarm payrolls.

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