Dollar Rises Against Counterparts On Rate Hike Hopes

(RTTNews) - The U.S. dollar climbed higher on Thursday, scoring gains over its major counterparts, amid bets the Federal Reserve will remain aggressive with interest rate hikes in order to combat inflation.

Worries about recession in Asia and Europe following data showing contraction in manufacturing activity boosted the demand for the safe-haven currency.

Cleveland Federal Reserve President Loretta Mester said that the fed funds rate will be required to rise above 4 percent by early next year.

Mester added that she does not anticipate the Fed cutting interest rates in 2023 and that rates would remain elevated "for some time."

The CME Group's FedWatch is suggesting a 72.5 percent chance of a 75 basis point rate hike this month.

Data from the Labor Department unexpectedly showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended August 27.

The report showed initial jobless claims edged down to 232,000, a decrease of 5,000 from the previous week's revised level of 237,000.

The dip came as a surprise to economists, who had expected jobless claims to inch up to 248,000 from the 243,000 originally reported for the previous week.

A separate report released by the Institute for Supply Management showed its reading on U.S. manufacturing activity remained at a two-year low in August.

The ISM said its manufacturing PMI came in at 52.8 in August, unchanged from July. Economists had expected the index to edge down to 52.0.

While the index remained at its lowest level since hitting 52.4 in June 2020, a reading above 50 still indicates growth in the manufacturing sector.

The dollar index surged to 109.98, a new 20-year high, before easing to around 109.70, still firmly up with a gain of about 0.9%.

Against the Euro, the dollar firmed to 0.9945 from 1.0055. The euro area manufacturing activity shrank for the second straight month in August, adding to fears of recession in the currency bloc, final survey data from S&P Global showed.

The final factory Purchasing Managers' Index declined to a 26-month low of 49.6 in August from 49.8 in the previous month. The flash score was 49.7. The reading was below the neutral 50.0 mark for the second straight month.

The dollar is trading at $1.1542 against Pound Sterling, strengthening from $1.1621. Final survey results from S&P Global showed the UK manufacturing sector registered its sharpest contraction since May 2020 on steep decreases in production and order intake. The Chartered Institute of Procurement & Supply factory Purchasing Managers' Index fell to 47.3 in August from 52.1 in July. But the score was above the flash estimate of 46.0.

Against the Japanese currency, the dollar is stronger by nearly 1% at 140.20 yen, firming from 138.95 yen.

The AUD/USD is trading at 0.6787, and the USD/CHF pair is at 0.9818.

The Loonie is down at C$1.3157 against the dollar, easing from C$1.3129.