Dollar climbs after U.S. labor, consumer sentiment data

A bank employee counts U.S. dollar notes at a Kasikornbank in Bangkok

By Chuck Mikolajczak

NEW YORK (Reuters) -The dollar index rose on Wednesday, rebounding from a 2-1/2 month low after economic data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week.

Initial claims for state unemployment benefits dropped by 24,000 to a seasonally adjusted 209,000 for the week ended Nov. 18, the Labor Department said on Wednesday, the lowest level in more than a month. Economists polled by Reuters had forecast 226,000 claims for the latest week.

Other data, however, showed orders for long-lasting U.S. manufactured goods fell more than expected in October as orders for motor vehicles and parts dropped amid strikes by the United Auto Workers (UAW) union against Detroit's Big Three automakers.

"The fact that we are seeing a drop definitely suggests that the labor market is not cooling as quickly as markets or the Fed might have been expecting there," said Karl Schamotta, chief market strategist at Corpay in Toronto.

"And then at the same time the fact that we have this slowdown in CapEx investment ... that suggests that underlying momentum in the economy is beginning to fade so, largely still consistent with the soft landing thesis, but labor markets holding up better than expected," Schamotta added.

Schamotta also said market participants were maintaining relatively high dollar positions before liquidity dries up before the U.S. Thanksgiving holiday on Thursday.

The dollar index had fallen to its lowest level since Aug. 31 on Tuesday before stabilizing after minutes from the Federal Reserve's last meeting indicated the central bank was likely to maintain a restrictive stance on interest rates for some time, even if more rate hikes are unlikely.

The Fed minutes showed central bank officials said inflation remained well above their target but noted that rates would need to be raised only if new data showed insufficient progress on reducing price pressures.

Markets have essentially ruled out any move in rates by the Fed at its December meeting, while pricing in a better than 50% chance of a rate cut by May, according to CME's FedWatch Tool.

The greenback extended gains after the University of Michigan's survey of consumer sentiment showed U.S. consumers' inflation expectations rose for a second straight month in November.

The dollar index rose 0.37% to 103.9, on track for its biggest one-day percentage gain since Nov 9.

The euro was down 0.24% at $1.0883. European Central Bank (ECB) policymaker Mario Centeno said he expected macroeconomic conditions would lead to a reversal in the bank's recent cycle of rate hikes in the near future while Governing Council member Joachim Nagel said rates in the euro zone are close to their peak in the current cycle or may have already reached it.

The Japanese yen weakened 0.82% to 149.61 per dollar, while Sterling was last trading at $1.249, down 0.37% on the day.

Sterling was poised to snap a four-session streak of gains after British finance minister Jeremy Hunt announced tax cuts for workers before an expected 2024 election and gave businesses permanent investment incentives in an attempt to speed up the economy.

In cryptocurrencies, bitcoin shares rose 0.97% $37,203 a day after falling 1.8% in the wake of Binance chief Changpeng Zhao pleading guilty to breaking U.S. anti-money laundering laws, in a $4.3 billion settlement resolving a years-long probe into the world's largest crypto exchange.

Investors have pulled about $956 million from the crypto exchange over the past 24 hours since Zhao stepped down.

(Reporting by Chuck Mikolajczak; Editing by Will Dunham and Richard Chang)