Fed interest rate cut seen as US dollar gains ground

10/08/2015 05:47 AST

KUWAIT — The US dollar surged against most of its major counterparts as positive data from the US labor market continued to support expectations that the Federal Reserve might increase rates as soon as September, National Bank of Kuwait (NBK) reported on Sunday.

In addition, data released last week showed that the services sector in the US expanded at its fastest pace in 10-years boosting optimism over the health of the economy. Despite a slowdown in the manufacturing sector, the dollar remained resilient throughout the week and closed the week on a high note with a positive nonfarm payroll figure.

Service sector activity in the US grew at the fastest pace since August 2005 in July, boosting optimism over the health of the economy and supporting the case for a rate hike in September. In a report, the Institute of Supply Management said its non-manufacturing purchasing manager’s index rose 60.3 last month from 56.0 in June, above forecasts for a reading of 56.2. The Non-Manufacturing Business Activity Index increased to 64.9, which is 3.4 points higher than the June reading of 61.5, the New Orders Index registered 63.8, 5.5 points higher than the reading of 58.3 registered in June and finally, the Employment Index increased 6.9 points to 59.6 from the June reading of 52.7, while the Prices Index increased 0.7 points from the June reading of 53.0 to 53.7.

Meanwhile, the greenback is expected to maintain its strength as the divergence in policies between the US Fed and other major central banks in China, Europe and Japan continues to widen.

Last week, the euro weakened against the US dollar in spite of positive developments in Greek bailout talks which provided increased optimism that a comprehensive deal could be reached in the near future. The single currency opened the week at 1.0985 and dropped to a low of 1.0848 as comments from the Federal Reserve Bank of Atlanta President Dennis Lockhart indicated that that the US central bank was close to raising rates next month. The euro recouped most of its losses.

Saudi Gazette