After the US services sector data were released yesterday, the US dollar was able to get a boost again. The chances of a US interest rate hike also seem to be increasing, with a decision due on September 21st.
Activity growth in the US service sector accelerated in August, which was revealed by the Institute for Supply Management (ISM) in its report released on Tuesday. The ISM Services Managers' Index came in at 56.9 points, up from 56.7 points recorded in July and beating analysts' expectations. On the other hand, the Business Activity Index came in at 60.9 points, up from 59.9 in July. The new orders index rose by 1.9 points month-on-month to 61.8 points. On the other hand, the price index fell from 72.3 points in July to 71.5 points in August.
The aforementioned data may indicate that the US economy appears to be in better shape than previously perceived. The recession about which there has been a lot of talks may therefore be rather shallow, which may ultimately lead to a belief among Fed officials that the economy can easily cope with even higher interest rates.
Consequently, expectations of a 75 basis point rate hike in September have risen, with the market now seeming to price in a 74% probability of such a move. This could also translate into US dollar quotes. It could be particularly evident in the USD/JPY pair's quotations. The rate approached the 144 yen per dollar threshold this morning, a level not seen since the late 1990s.
It would still appear that the Bank of Japan's monetary policy may contrast with that of the Fed. Interest rate hikes are still expected in the US; therefore, from this perspective, the dollar may be more attractive against the yen. Indeed, the Bank of Japan is maintaining a course of monetary easing.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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