US dollar rallies as weak economic data sinks euro

THE US dollar rose on Tuesday (Oct 24) after briefly falling to a one-month low on the back of a drop in US bond yields, as weak economic data sent the euro sliding.

Survey data showed that eurozone business activity took a surprise turn for the worse this month in a broad-based downturn across the region, suggesting the bloc may slip into recession.

The euro reversed course and was last 0.43 per cent lower at US$1.0624, having traded roughly 0.1 per cent higher at US$1.0684 before the data was released.

German data was particularly glum. The purchasing managers’ index survey showed that the service sector joined the beleaguered manufacturing sector in contractionary territory.

A drop in the euro bolstered the US dollar index, which measures the US currency against its major peers. The index was last up 0.33 per cent at 105.95, after earlier falling to 105.35, the lowest since Sep 22.

Jane Foley, head of FX strategy at Rabobank, said the weakness of the eurozone and German economies compared to the US was likely to limit any falls in the US dollar.

“The lynchpins of the success of Germany’s production sector are now a little bit more wobbly,” she said, citing a slowdown in China, higher energy costs, and demographic issues.

Global financial markets have been gripped by a surge in US bond yields which on Monday pushed the all-important 10-year Treasury yield above 5 per cent to its highest since July 2007. The rise in yields drove the US dollar index to an almost one-year high earlier this month.

The yield then dropped sharply later on Monday. Analysts said one catalyst was a social media message by prominent hedge fund investor bill Ackman, saying he had closed out his bet against longer-dated bonds and that geopolitical worries were a factor. Yields rise as prices fall and vice versa.

The US dollar was last up less than 0.1 per cent at 149.83 Japanese yen, rising back near the 150 mark that tends to make traders nervous about possible government intervention to prop up the Japanese currency. It had traded lower against the yen earlier in the session.

US gross domestic product data is due on Thursday before closely watched inflation data on Friday, which could trigger more swings in bond yields and currency markets.

“The yen will be particularly sensitive to hot US data, especially if it causes Treasuries to blow through what’s looking like a key resistance level of 5 per cent or so,” said Kyle Rodda, senior financial market analyst at Capital.com.

The US dollar was last up 0.29 per cent against the Swiss franc at 0.8935 francs. The Swiss currency, traditionally seen as a safe-haven asset, has gained in recent days after the outbreak of war between Israel and Hamas.

Britain’s pound was last down 0.3 per cent at US$1.2212. Data on Tuesday showed that the UK labour market slowed slightly in the three months to August.

The Bank of England is due to set interest rates on Thursday next week, after the Federal Reserve’s decision on Wednesday. The European Central Bank’s meeting ends this Thursday, with traders expecting all three central banks to hold rates steady.

In cryptocurrency markets, bitcoin continued to rise in Asian trading hours to touch US$35,198, its highest since May 2022, on speculation that an exchange-traded bitcoin fund is imminent. REUTERS