The US dollar edged higher on Thursday with the dollar index rising 0.1% to 102.68. This came despite Fitch Ratings' downgrade of the US credit rating from AAA to AA+ on Tuesday. The greenback was buoyed by stronger-than-expected private payrolls data for July that signaled a resilient US labor market and bolstered the view that the Federal Reserve will continue an aggressive interest rate hiking path.
Private sector employment rose by 324,000 jobs last month, more than double what economists had forecast. While the labor market is showing gradual signs of slowing, the US economy remains robust with the Atlanta Fed estimating third quarter GDP growth at 3.9%.
The strong economic data suggests the Fed will continue raising interest rates, widening the rate differential and making the dollar more attractive, said Michael Arone of State Street Global Advisors. The dollar gained against most major currencies though the euro and pound were little changed after the Fitch downgrade. The euro rose 0.04% to $1.094 while the pound fell 0.08% to $1.2699. The dollar gained 0.2% against the yen.
Fitch's downgrade cited likely fiscal deterioration and repeated debt limit debates in Washington that threaten the government's ability to pay its bills. The move shook markets with global equities falling 1.6%. However, the impact on currency markets was muted.
Investors now await the Bank of England's interest rate decision later Thursday. The market is split on whether the BoE will hike rates by 25 or 50 basis points from the current 5%. A larger hike could provide some support for the British pound.
