The US dollar rose against other major currencies on Monday following the release of manufacturing activity data that exceeded analyst estimates. Expectations of higher interest rates in the short term led an index that tracks the strength of the greenback touched its highest level in about one and half months.
The Institute for Supply Management stated in a report that was published today that the manufacturing purchasing managersâ index had a reading of 60.8 in September. The reading compared to 58.8 in the previous month and beat expectations of a drop to 58.0. The increase reflected higher economic activity in the manufacturing sector as the overall economy continued to grow steadily.
A subindex for employment within the manufacturing sector rose 0.4 from 59.9 in August to 60.3 in September, while a subindex for new orders reached 64.6 from 60.3. All but one of the 18 manufacturing industries included in todayâs release reported growth last month, while furniture manufacturers reported a decline in activity.
Todayâs data further stoked expectations of an interest rate hike from the Federal Reserve before the end of the year. Janet Yellen, the central bankâs chairwoman, had said in a speech last week that it would be imprudent to keep interest rates unchanged until US inflation reaches 2%.
The CME FedWatch tool, which tracks future prices of federal funds to measure the probability of interest rate changes, showed 76.7% chance of a 0.25% hike in December. The central bankâs Federal Open Market Committee has two more meetings before the end of the year, the first is scheduled for November 1 and the second will be on December 13.
Reports that former Governor Kevin Warsh may be chosen to replace Yellen were viewed as positive for the dollar. Warsh has monetary policy stance that is more hawkish than Yellenâs. He may increase the pace of monetary policy tightening if he became the head of the Federal Reserve.
Further support for the greenback came from speculations surrounding President Donald Trumpâs tax cuts. Investors rushed to buy US government bonds in anticipation of the tax cuts, which strengthened the dollar.
EUR/USD traded at 1.1743 as of 16:40 GMT on Monday after dropping to 1.1730 at 10:25 GMT, the pairâs lowest level since September 28. EUR/USD began trading this week at 1.1794.
The Dollar Index, which measures the performance of the US currency against its major peers, climbed to 93.57 as of 16:36 today, the highest level since August 17, from 93.07 yesterday.
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