A buoyant dollar pushed the yen to a 10-month trough on Thursday and kept the euro and sterling pinned near three-month lows, as investors placed their faith in a still-resilient U.S. economy even amid a dour global growth outlook.
The greenback scaled a fresh top of 147.865 yen JPY=EBS in early Asia trade, its highest since last November.
Against a basket of currencies, the dollar was last 0.05% higher at 104.91, holding on to some of its gains from the previous session after scaling a six-month peak on news that the U.S. services sector unexpectedly gained steam in August.
The stronger-than-expected data pushed the euro EUR=EBS to its lowest since June at $1.0703 on Wednesday, with the single currency last 0.03% lower at $1.0723.
Sterling GBP=D3 similarly lost 0.07% to stand at $1.24985, having also bottomed at a three-month trough of $1.24835 in the previous session.
"It certainly was a good (ISM) ... so those thinking of a (U.S.) recession in the near term might be a little bit disappointed," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (CBA). "However, the Beige Book ... wasn't that great, actually."
U.S. economic growth was "modest" in recent weeks, job growth was "subdued," and inflation slowed in most parts of the country, the Federal Reserve report published on Wednesday showed.
"I think that what's really driving the dollar is not so much that the U.S. economy is doing great, but it's doing better than elsewhere."
Market pricing shows a near 47% chance that the Fed might deliver another rate hike in November, according to the CME FedWatch tool, though expectations are for policymakers to keep rates on hold later this month.
Conversely, Bank of England (BoE) Governor Andrew Bailey said on Wednesday that the central bank is "much nearer" to the end of its rate-hike cycle, though borrowing costs might still have further to rise because of stubborn inflation pressures.
On the same day, European Central Bank policymakers warned investors that the decision for a rate increase next week was still up in the air, but a rise in borrowing costs was among the options on the table.
"It was surprising to see those dovish comments from Governor Bailey ... that certainly does make us comfortable that they're only going to hike twice more," Capurso said, referring to the BoE.
"As for the ECB, what we're noticing is that there's a real divergence happening between various ECB members, and that to me is suggesting that at most you get one more rate hike out of the ECB."
ASIA DANGER? In Japan, traders continued to be on intervention watch as a fragile yen struggled to make headway against the dollar even as officials step up their warnings against a sell-off in the yen.
The Japanese currency JPY=EBS last bought 147.76 per dollar, having weakened past the closely-watched 145 threshold for nearly a month now. That was the key level which prompted an intervention by the authorities to support the yen last year.
"Yen's verbal intervention begs the question whether a real intervention is likely," said Saxo market strategist Charu Chanana. "As we have seen in the past, real intervention barely reverses the course of the yen sustainably."
The Australian dollar AUD=D3 slid 0.05% to $0.63795, while the New Zealand dollar NZD=D3 fell 0.01% to $0.5869, with both languishing near their recent 10-month lows.
China's trade figures are due later on Thursday, which could put further pressure on the antipodean currencies if the data points to further weakness in the world's second-largest economy.
The two are often used as liquid proxies for the Chinese yuan.
The offshore yuan CNH=D3 was last marginally lower at 7.3241 per dollar.
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