The US dollar climbed versus the euro and the Japanese yen on Thursday, as sentiments toward the near future outlook for US interest rates improved following hawkish signals from the Federal Reserve yesterday. Positive manufacturing data in the United States eased concerns about the health of the economy, which further supported the greenback today.
The Federal Open Market Committee released a statement yesterday after ending a monetary policy meeting that lasted two days. The statement said that policymakers decided to raise US interest rates 0.25% to 1.25%, which marks the second interest rate hike in 2017. The committee saw evidence of a stronger economy in job gains, consumer spending, and business investment, which outweighed a slowdown in inflation that pushed it further away from the Federal Reserveâs target.
A decision to gradually reduce the Federal Reserveâs $4.2 trillion balance sheet was also reached during the meeting, which signaled confidence in the economic health that allows curtailing quantitative easing. Traders believe that this decision raises the possibility of a third interest rate hike this year, assuming that economic indicators remain stable.
The CME Group FedWatch tool, which tracks prices of federal fund futures to calculate the likelihood of interest rate moves, showed a 36.3% chance of another interest rate increase in December. Higher interest rates often push the US dollar higher.
Positive readings for indexes of manufacturing activity in New York and Philadelphia improved tradersâ appetite for the greenback today. The Federal Reserve Bank of New York said that the Empire State manufacturing index rose to 19.8 in June from -1.0 in May, which beat estimates of 4.0. Steady improvements in business conditions and employment and optimistic expectations for the next 6 months were behind the strong reading this month.
The manufacturing index from the Federal Reserve Bank of Philadelphia also beat estimates of 24.0, with a reading at 27.6 in June from 38.8 in May. The reading, which marked 11 positive months in a row, revealed continuing growth in manufacturing activity within Philadelphia, however, at a slower rate than last month.
EUR/USD declined to 1.1144 as of 16:30 GMT on Thursday after touching 1.1134 at 14:05 GMT, which was the pairâs weakest level since May 30. EUR/USD started the day at 1.1212. USD/JPY surged to 110.73 after reaching 110.76 at 16:15 GMT, a level last seen on June 2. USD/JPY began trading today at 109.48.
The Dollar Index, which tracks the performance of the US currency against other major currencies, was at 97.49 as of 16:28 GMT today from 96.93 yesterday.
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