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US Dollar Falls as Euro Strengthens

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US Dollar Falls as Euro Strengthens

The US dollar index fell more than half a percent, as European markets reopened after the holidays. The gains were led by the euro, which soared more than 100 pips after the European Central Bank’s Jens Weidmann warned against implementing arbitrary monetary policy to counteract weak inflation.

The dollar index, which gauges the performance of the greenback against a basket of its major peers, fell to 80.4. The dollar was supported after the Federal Reserve announced it would begin paring asset purchases by $10 billion, beginning in January. However, it is unknown how the initial taper will affect monetary policy going forward.

“The Fed did decide to taper, but the amount was minimal and we have yet to see what the outlook will be going forward,” said Marito Ueda of Tokyo-based FX Prime Corp. “Some bets on dollar gains are being unwound into year-end.”

As Janet Yellen prepares to take over as Chairman of the Federal Reserve, many believe the US central bank will continue accommodating the markets with monetary easing and low interest rates for the foreseeable future. However, with the unemployment rate nearing the Fed’s threshold of 6.5 percent, the economy’s performance could warrant another taper in the not-too-distant future.

The dollar fell more than 100 pips against the euro, sending the EURUSD to its highest level in two years. Elsewhere in Europe, the British pound gained nearly 100 pips against the greenback, pushing beyond a two-year high. The GBPUSD pair soared to a session high of 1.6576 before consolidating at 1.6513.

The greenback was supported against the Japanese yen, holding on to weekly gains. In North America, the US dollar advanced 50 pips against the Canadian loonie, settling just short of 1.07 CAD.

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