Dollar edges higher on solid U.S. economic data

By Eimi Yamamitsu

TOKYO (Reuters) – The dollar bounced off two-year lows on Wednesday as U.S. data pointed to a firm manufacturing activity, while the euro retreated from its highest levels since 2018 on profit-taking.

Economic data published on Tuesday showed U.S. manufacturing activity accelerated to a nearly two-year high in August amid a surge in new orders, with the reading from the Institute for Supply Management highest level since November 2018.

The U.S. data followed similarly upbeat Chinese and European manufacturing indicators.

Mitsuo Imaizumi, chief FX strategist at Daiwa Securities, said an increase in pent-up demand, such as for cars, has contributed to the rise in the greenback.

Imaizumi however added that it is “unnecessary to see the data as entirely great,” as the ISM’s data also showed the labour market remained in contraction territory.

The dollar index <=USD> inched up 0.12% at 92.346, having hit its lowest since April 2018.

The greenback has been declining since last week, down about 1%, after the Federal Reserve announced it would focus more on average inflation and higher employment. With the Fed’s shift in policy having leeway to keep U.S. interest rates lower for longer, it has encouraged traders to sell the currency.

That view was reinforced on Tuesday as Fed Governor Lael Brainard said the central bank would need to roll out more stimulus to help the economy overcome the coronavirus and fulfil the Fed’s new pledge.

U.S. Treasury yields fell following the speech as additional stimulus would likely involve more aggressive bond-buying.

The euro benefited from the initial dollar sell-off, as it rose high as $1.2014 on Tuesday, its highest since May 2018.

The common currency later reversed those gains to sit at $1.19095.

Against the Japanese yen , the dollar was little changed at 105.75 yen.

Also supporting a rebound in the greenback, U.S. Treasury Secretary Steven Mnuchin said on Tuesday he would telephone House Speaker Nancy Pelosi about stalled coronavirus aid negotiations later in the day. White House chief of staff Mark Meadows said Senate Republicans are likely to bring up a targeted COVID-19 relief bill next week.

Among antipodean currencies, the Australian dollar changed hands at $0.73845, while the New Zealand dollar traded at $0.6764.

Elsewhere in the market, Sterling traded at 1.3422, just below last year’s high that followed the 2019 election of 1.3516.

The Chinese yuan was little changed, last up down 0.03% in offshore markets to 6.8266.

(Reporting by Eimi Yamamitsu; Editing by Sam Holmes)