The US Dollar has gained strength against rival currencies due to mixed data reports and Fitch’s downgrade of the US government’s credit rating. The USD Index reached its highest level in nearly a month above 102.50 in the European session before retreating to the 102.50 area in the second half of the day.
Fitch downgraded the US government’s credit rating to AA+ from AAA, citing anticipated fiscal deterioration over the next three years and a high general government debt burden. This led market participants to stay away from risk-sensitive assets, allowing the USD to find demand as a safe haven.
The number of first-time unemployment benefits applications in the US rose to 227,000 in the week ending July 29, and Unit Labour Costs rose 1.6% in the second quarter, lower than the market expectation of 2.6%. Economic activity in the US service sector continued to expand in July, albeit at a softer pace than in June.
The US Bureau of Labor Statistics will release the July jobs report on Friday, and nonfarm payrolls are forecast to rise 200,000. The 10-year US Treasury bond yield climbed to its highest level since November above 4.1%. US private sector employment rose by 324,000 in July, surpassed market expectations for an increase of 189,000 and provided further support to the US dollar.
The US economy is doing better than expected, and a healthy labor market supports household spending.
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