HONG KONG: The dollar strengthened in Asian trade on Tuesday on increasing expectations the Federal Reserve will lift interest rates while the weaker yen helped Japanese stocks extend the previous day’s rally.
News showing the US manufacturing sector rebounded in September helped turn attention back to US monetary policy, days ahead of the release of a closely watched jobs report.
The speculation added further pressure on sterling against the dollar, while it is also struggling at three-year lows against the euro after British Prime Minister Theresa May set a timetable for leaving the European Union.
US factory activity expanded in September, the Institute for Supply Management said on Monday, after showing contraction the month before.
Traders took the report as a sign the world’s top economy is getting back on track and would be able to withstand an increase in borrowing costs. The Fed had considered a rate hike last month but held off, saying it wanted to see more evidence of strength.
“The data is suggesting the Fed will likely raise rates in December,” Michael McCarthy, chief market strategist at CMC Markets in Sydney, told Bloomberg News.
“We’ll probably have a couple of months of stronger data gauging from the strength of new orders. The yen weakness is supportive of Japanese exports.”
The dollar rose to 102.26 yen from 101.63 yen in New York on Monday while the euro dipped to $1.1186 from $1.1211.
Japanese exporters were lifted by the weaker yen, which makes their goods cheaper and helps their bottom line.
The Nikkei closed 0.8 percent higher, just short of the previous day’s rise.
Stocks were also up elsewhere in Asia, despite some early wariness after a surge Monday — fuelled by easing worries about German financial titan Deutsche Bank.
Hong Kong was up 0.1 percent in the afternoon while Singapore rose 0.4 percent, and Seoul added 0.6 percent as investors returned from a long weekend break.
Sydney was also up 0.1 percent as Australia’s central bank kept interest rates at a record low in the first meeting for newly minted chief Philip Lowe, amid solid domestic growth and signs that commodity prices have passed their trough.
Shanghai was closed for a holiday.
The pound fell to $1.2825 from $1.2841 while the euro was at 87.19 pence from 87.30 pence after May at the weekend said Britain will trigger Brexit negotiations by the end of March and her finance minister warned of “turbulence” for the economy.
Sterling fell to a 31-year low $1.2820 on the comments on Monday.