NEW YORK (Reuters) – The U.S. dollar gained on Wednesday as data supported the view that the U.S. economy is in strong shape and as concerns about Italy’s budget negotiations continued to weigh on the euro.
FILE PHOTO: U.S. Dollar and Euro notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration
U.S. services sector activity raced to a 21-year high in September and companies boosted hiring, signs of enduring strength in the economy at the end of the third quarter.
Private employers also added 230,000 jobs in September, the most since February, according to the ADP National Employment Report on Wednesday. That was more than economists’ expectations of 185,000 jobs.
The data is consistent with the Federal Reserve’s message last week and Fed Chairman Jerome Powell’s comments on Tuesday that the U.S. central bank is “still very much committed to a gradual path when it comes to rate hikes going forward,” said Bipan Rai, head of North American foreign exchange strategy at CIBC Capital Markets in Toronto.
Powell on Tuesday hailed a “remarkably positive outlook” for the U.S. economy that he feels is on the verge of a “historically rare” era of ultra-low unemployment and tame prices.
The Fed last Wednesday raised interest rates as expected and said it foresees another rate hike in December, three more next year and one in 2020.
The dollar is outperforming as U.S. growth remains strong while economic data in other large economies including the eurozone has come in below expectations.
“One of the reasons we think why the dollar has been so bid in the last several months has been because the U.S. economy has been performing reasonably well, whereas we’ve seen a material slowdown in terms of data coming out of the eurozone and Japan and other large economies,” said Rai.
The euro is also being hurt by uncertainty surrounding Italy’s debt, fiscal plans and future ties with Europe, which have unnerved markets and exacerbated tensions with other eurozone leaders.
The euro has been testing key technical support at $1.510-$1.508, which was a temporary low set in June.
“This MUST hold on a closing basis for an overall upside bias to remain intact,” Karen Jones, an analyst at Commerzbank wrote in a report on Wednesday.
A break below this level would be viewed as bearish and likely result in further weakness to around $1.13, said Jones. That level was a one-year low reached in August.
Reporting by Karen Brettell; editing by Jonathan Oatis and Susan Thomas