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USDX: Consumer confidence helps dollar pare losses as Fed decision looms

H.S. Borji
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USDX: Consumer confidence helps dollar pare losses as Fed decision looms

The US dollar pared its losses against a basket of currencies Tuesday as consumer confidence unexpectedly reached its highest level in seven years, as investors awaited a potentially landmark announcement from the Federal Reserve Wednesday.

The US dollar index, a weighted average of the greenback against a basket of currencies including the euro, yen, pound, franc, krona and Canadian dollar, fell to an intraday low of 85.24. It would subsequently consolidate at 85.33, shedding 0.2 percent.

The euro advanced sharply against the dollar, as the EURUSD climbed 0.54 percent to 1.2744.

The greenback stumbled against the British pound, as the GBPUSD rose 0.4 percent to 1.6158.

The Canadian dollar rebounded against its southern counterpart, as the USDCAD tumbled 0.46 percent to 1.1183.

The dollar depreciated against the yen, as the USDJPY tumbled 0.12 percent to 108.08.

Stronger housing data and an unexpected rise in consumer inflation helped the index rally last week after posting two consecutive weekly declines.

The greenback faced a broad retracement in October after posting unprecedented gains over the summer months. Global growth woes and shaky US data weighed on the world’s most actively traded currency. Investors are now trying to determine whether the US recovery warrants an earlier than expected rate-hike, or whether volatile global conditions could warrant a more prolonged period of rock-bottom interest rates.

The Federal Reserve on Wednesday is expected to taper bond purchases one final time at a rate of $15 billion, thereby closing the books on QE3 after more than two years. Since embarking upon monetary stimulus in 2008, the Federal Reserve’s balance sheet has swelled to more than $4 trillion. These measures helped lift the US economy out of a devastating recession that destroyed nearly nine million jobs and $19 trillion in household wealth.

In economic data, US consumer confidence increased sharply in October, reaching the highest level since 2007.

The Conference Board’s consumer confidence index rose 7.5 points to 94.5 in October after plunging unexpectedly a month earlier. A stronger appraisal of the current labour market and business conditions was responsible for the sharp rebound.

The dollar bulls were kept in check after separate data showed durable goods orders declined unexpectedly in September, signaling that global volatility was weighing on manufacturing activity.

Orders for manufactured goods meant to last three years or more declined 1.3 percent in September. Durable goods orders had declined 18.3 percent in August following a double-digit surge in July that resulted from stronger demand for civilian aircraft.

The flurry of economic data resumes Thursday. With the latest Fed decision fresh in the minds of investors, GDP and personal income data could trigger volatility in the currency markets.

Internationally, Eurozone employment, retail sales and inflation data could also impact US dollar pairs. Eurozone consumer inflation is expected to reach 0.4 percent in the 12 months through October. Germany’s consumer price index is forecast to climb 0.9 percent over year-ago levels.

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