Dollar hits six-month peak after US data; weak yen draws warning
dollar ascended to a six-month peak on Wednesday, reversing earlier losses, after U.S. data showed the services sector surprisingly picked up steam last month amid higher new orders and businesses paying elevated prices, suggesting persistent inflation pressure.
The greenback recovered against most currencies after the data, with the euro and sterling hitting three-month lows and the yen touching session troughs.
Data showed the Institute for Supply Management (ISM)'s non-manufacturing PMI rose to 54.5 last month, the highest reading since February and up from 52.7 in July.
A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy.
Economists polled by Reuters had forecast the non-manufacturing PMI would decrease to 52.5, and no economist anticipated a higher reading than 53.9.
The data suggested that interest rates will remain elevated for longer, although that doesn't alter expectations that the Federal Reserve will pause its rate hikes at a meeting later this month.
«The two big challenges facing the Fed right now are the risks that inflation could become entrenched and the risks that the consumer could falter when excess savings dry up,» wrote Jeffrey Roach, chief economist, at LPL Financial, in a note after the data.
«Given the data, the Fed will most likely deliver a hawkish pause at the next meeting. The hard data is not yet convincing enough to establish strong views about the subsequent meetings.»
By midmorning trading, the dollar index rose to a fresh six-month high of 105.03, and was last at 104.95, up 0.2%.
The euro and sterling fell to three-month lows after the data and were last down 0.1% at $1.0714 and down 0.5% at $1.2496, respectively.
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