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What’s happening: The US dollar moved higher on Wednesday, hitting a six-month high.
What happened: Data released on Wednesday showed the US services sector surprisingly accelerating last month.
The euro and British pound fell to three-month lows against the US dollar after the data, but pared some gains during the afternoon session.
Why it matters: Data showed the ISM services PMI unexpectedly climbed to 54.5 in August, the strongest growth in the country’s services activity in six months, amid an increase in new orders. The latest reading came in higher than July’s figure of 52.7 and also beat market expectations of 52.5.
Although the recent data signalled that interest rates will remain higher for longer, it does not change the prospects of the US Federal Reserve keeping rates unchanged at its upcoming meeting this month. Speculations of the Fed hiking rates in November and December increased on Wednesday.
On the other hand, PMIs for China and Europe disappointed investors. China’s services sector growth eased to an eight-month low in August.
The US Fed also released its Beige Book report on Wednesday, which showed a moderation in the country’s economic growth in recent weeks, while inflation eased in most parts of the country.
The US trade deficit widened less than expected to $65 billion in July, compared to a gap of $63.7 billion in June. Markets were expecting a higher deficit of $68 billion.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.1% to 104.86 on Wednesday, after surging to a new six-month high of 105.03 earlier in the session.
The EUR/USD forex pair closed almost flat at 1.0726, while the GBP/USD fell around 0.5% to 1.2507, after both pairs fell to three-month lows earlier in the session.
What to watch: Traders await the release of economic data on initial jobless claims, nonfarm labour productivity and unit labour costs from the US today.
The number of persons filing for jobless benefits, which fell by 4,000 to 228,000 in the week ending August 26, is expected to increase to 239,000 in the latest week. Analysts expect nonfarm business sector labour productivity to rise 3.7% in the second quarter, after a 1.2% decline in the prior quarter. Unit labour costs in the nonfarm business sector are projected to increase by an annualised 1.6% in the second quarter, following 3.3% growth in the prior quarter.
Context: Equity markets in Europe settled lower on Wednesday, as investors assessed the latest economic data.
Details: European stock markets fell on Wednesday, extending losses for the sixth session in a row, amid declines in banks and household goods on weak economic reports.
The latest data showed Germany’s factory orders falling more than projected in July, while the Eurozone’s retail sales contracted more than expected.
Retail sales in the Eurozone fell by 0.2% in July, versus 0.2% growth in June. The figure was higher than market estimates of a 0.1% decline. Eurozone’s construction PMI also slipped to 43.4 in August, from 43.5 in July.
Investors remained cautious about inflation concerns, with crude oil prices spiking after Saudi Arabia announced plans to extend its output cut of 1 million barrels per day till yearend.
The STOXX Europe 600 Index fell 0.57% to settle at 454.30 on Wednesday, with most sectors closing in the negative zone. Germany’s DAX 40 lost 0.19%, while France’s CAC 40 declined by 0.84%.
The S&P Global/CIPS UK construction PMI fell to a reading of 50.8 in August, from 51.7 a month ago. London’s FTSE 100 declined 0.16% to close at 7,426.14 on Wednesday.
What to watch: Traders await economic reports on Eurozone’s GDP growth rate and employment change today. The Eurozone economy is expected to expand by 0.6% year-over-year in the second quarter, following 1.1% growth in the prior period. Analysts expect the number of employed persons in the Eurozone to increase by 0.2%, compared to 0.5% growth in the earlier quarter.
Other Markets: US trading indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.57%, 0.70% and 0.88%, respectively.
US Secretary of State Antony Blinken made a surprise visit to Kyiv to meet with major Ukrainian officials. The news sent the safe-haven US dollar index slightly higher this morning.
Australia’s trade surplus narrowed to A$8.04 billion in July, versus A$10.27 billion in the previous month. The figure was also below market estimates of A$10 billion and exerted pressure on the AUD/USD forex pair.
The Philippines said its manufacturing production rose 5.7% year-over-year in July, following 4.2% growth in June, which sent the PHP/USD pair higher in forex trading this morning.
The American Petroleum Institute said US crude stockpiles declined by 5.521 million barrels in the week ended September 1, following a contraction of 11.486 million barrels in the prior week, which exerted pressure on the WTI crude oil prices.
The Bank of Canada maintained the target for its overnight rate at 5% at its latest meeting, sending the CAD/USD pair lower in forex trading this morning.
France’s payroll employment, foreign exchange reserves, current account and balance of trade, Germany’s industrial production, Saudi Arabia’s GDP growth rate, South Africa’s foreign exchange reserves and current account, UK’s Halifax house price index, Italy’s retail sales, Singapore’s foreign exchange reserves, Turkey’s gross foreign exchange reserves and treasury cash balance, Mexico’s inflation rate, car output and auto exports, Canada’s value of building permits and Ivey Purchasing Managers Index, US Natural gas stocks change, crude oil inventories, gasoline inventories and distillate stocks, China’s foreign exchange reserves, Spain’s consumer confidence indicator, as well as Argentina’s industrial production.
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