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The dollar rose against a basket of currencies on Tuesday as a slew of fresh economic data highlighted the strength of the US economy relative to the United Kingdom and the European Union.

US business output increased in October as the manufacturing sector emerged from a five-month contraction due to a pickup in new orders, and services activity moderately accelerated amid signs of easing inflationary pressures, as reported by S&P Global on Tuesday.

This development serves as the latest indication that the US economy is resilient to the surge in interest rates, prompted by the Federal Reserve’s campaign to combat inflation. The dollar index, which measures the currency’s strength against a basket of six rivals, saw a 0.6% increase, reaching 106.27. The index had previously dropped to a one-month low of 105.35 earlier in the session.

Helen Given, an FX trader at Monex USA, commented, “The big picture still remains clear, particularly when you compare US PMI to the concurrent releases from the UK and the Eurozone this morning. While all three PMI readings for the US (manufacturing, services, and composite) were positive, both the UK and the Eurozone showed contractions, highlighting the enduring strength of the larger US economy in comparison to its global peers.”

Earlier on Tuesday, survey data revealed that euro zone business activity unexpectedly worsened this month in a broad-based downturn across the region, indicating the potential for the bloc to slip into a recession. As a result, the euro EUR=EBS was down 0.8%, settling at $1.0588.

German data was particularly gloomy, with the purchasing managers’ index survey showing the service sector entering contractionary territory, joining the manufacturing sector.

The Bank of England is scheduled to set interest rates next Thursday after the Fed’s decision on Wednesday. The European Central Bank’s meeting is set to conclude this Thursday, with traders expecting all three central banks to maintain their rates.

Ariane Curtis, a global economist at Capital Economics, stated, “The October flash PMI surveys suggest that economic activity got off to a weak start in Q4, especially in Europe. With weak activity affecting labor markets and inflation, we are becoming more confident in our view that the Fed, ECB, and Bank of England are finished with policy rate hikes.”

Global financial markets have been shaken by a surge in US bond yields, which on Monday pushed the benchmark 10-year Treasury yield above 5%, its highest level since July 2007. This rise in yields drove the dollar index to an almost one-year high earlier this month.

However, the yield sharply dropped later on Monday. Analysts attributed this drop to a social media message from prominent hedge fund investor Bill Ackman, announcing that he had closed out his bet against longer-dated bonds, with geopolitical concerns as a factor. Yields rise as prices fall, and vice versa.

The dollar was last up 0.1%, at 149.91 yen JPY=EBS, which has traders on edge about potential government intervention to support the Japanese currency.

The British pound GBP=D3 was last down 0.72%, at $1.2161. Surveys on Tuesday showed that Britain’s businesses reported another decline in activity this month, and cost pressures continued to ease, underlining the risk of a recession.

In cryptocurrency markets, bitcoin BTC=BTSP extended its rise, buoyed by speculation that an exchange-traded bitcoin fund is imminent. The world’s largest cryptocurrency by market cap was last up 2.4%, at $33,850.

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Reference:

https://www.tbsnews.net/world/dollar-rises-us-business-activity-ticks-october-726174

https://finance.yahoo.com/news/forex-dollar-higher-us-business

https://www.reuters.com/markets/us/us-business-output-ticks-up-october-inflation-pressures-ease-2023-10-24/

https://economictimes.indiatimes.com/markets/forex/dollar-bounces-euro-heavy-on-us/euro-zone-growth-outlook-divergence/articleshow/104683983.cms

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