The dollar strengthened on Tuesday while major US indexes were down amid signals from the Federal Reserve that interest rates are likely to increase next month. The prospect of higher interest rates in the United States pressured emerging markets such as Mexico, Brazil and South Korea, causing significant declines in their currencies.
The U.S. dollar strengthened against the Japanese yen, reaching 124.41 after Tuesday’s 123.77 low. The euro declined against the dollar on Tuesday, retreating to $1.0862 after a daily high of $1.0988. When compared to basket of currencies as part of the dollar index, the dollar rose to 98.132 – nearing July’s record of 98.151. U.S. stocks were also down on Tuesday after Federal Reserve Bank of Atlanta President Dennis Lockhart stated that the economy is ready for a rate hike and that it would take significant deterioration in the market to delay the move further.
The Dow Jones Industrial Average declined 47.5 points, or 0.3%, to close Tuesday’s trading session at 17550.69. The Standard & Poor’s 500 fell 4.72 points, or 0.2% to trade at 2093.32, and the Nasdaq Composite declined 9.84 points, or 0.2%, to close the session at 5105.55.
Asian shares followed Wall Street in early Wednesday trading, displaying a mixed performance. Japan’s Nikkei was up 0.55%. The South Korean KOSPI slid 0.1% and MSCI's broadest index of Asia-Pacific shares outside Japan fell back 0.5%. The Chinese CSI 300 index of the largest listed companies in Shanghai and Shenzhen remained flat after recovering some losses on Tuesday. Despite recent weak manufacturing data, the Markit services report climbed to an eleven-month high, indicating that consumers could be the driving force for growth as well as demand for commodities.
Crude oil recovered some of its losses, but still remains near $46 per barrel. However, the overly abundant supplies and relatively weak demand outlook likely render the rebound temporary, according to analysts. As of this writing, crude oil is up 0.74% and trading at $46.47.
Eurozone Services and Markit composite PMI reports will be released today, offering some insight into the region’s spending activity in the services and manufacturing. However, the focus this week is Friday’s U.S. nonfarm payrolls report. The Federal Reserve stressed its data-dependent position on raising interest rates on numerous occasions, making this week’s report particularly influential.