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US dollar steadies amid European data, Yellen testimony

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US dollar steadies amid European data, Yellen testimony

The US dollar held its ground amid several disappointing data releases from Europe, as markets reacted to testimony from Federal Reserve Vice Chairman Janet Yellen. The dollar index was unchanged at 80.92 after falling below the 81.00 handle earlier in the week.

The greenback enjoyed the upper hand against the euro, after the 17-nation currency bloc suffered a major setback in the third quarter. Eurozone gross domestic product declined at an annualized rate of 0.4 percent, after the currency region’s three largest economies posted quarterly setbacks. The German economy expanded 0.3 percent in the third quarter, compared to 0.7 percent in Q2. Economic activity contracted 0.1 percent in France and Italy; the latter’s economy contracted 1.9 percent from year-ago levels.

The EURUSD hit a session low of 1.3419 in Europe before consolidating at 1.3454, a loss of 33 pips. The common currency has been under pressure ever since the European Central Bank slashed interest rates to counteract the slowest pace of inflation growth in four years.

Elsewhere in Europe, the British pound remained well bid despite posting negative retail sales figures. Retail sales unexpectedly dropped 0.6 percent in October, according to the Office for National Statistics. The GBPUSD attempted a re-test of 1.61, but failed to make a lasting impact. The pair consolidated on a gain of 20 pips to settle around 1.6063.

The next Chairman of the Federal Reserve, Janet Yellen, told the Senate Banking Committee she won’t pull the plug on monetary stimulus too soon. Yellen said Fed support was still needed to get the economy back on track.

“It’s important not to remove support, especially when the recovery is fragile,” Yellen said, reminding the Committee unemployment remains well above its historical average. The central bank is expected to maintain the current pace of record stimulus until March 2014 at the earliest. The dovish Yellen won’t rush to reign in record stimulus until the employment situation improves.

Since late-2008, the Federal Reserve has pumped nearly $4 trillion into the economy through three separate rounds of bond buying. Record stimulus has helped the Standard & Poor’s 500 Index jump more than 160 percent in four years.

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