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USD: Dollar’s meteoric rise continues

H.S. Borji
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The US dollar continued to climb against a basket of currencies Thursday, as the European Central Bank signaled at broader action to stimulate the Eurozone in the latest sign of policy divergence between the United States and the rest of the world.

The US dollar index, a weighted average of the greenback against a basket of trade partners’ currencies, climbed 0.34 percent to 87.75. The index, which climbed to fresh multi-year highs this week, has gained 1.6 percent since October 31.

In economic data, US jobless claims declined faster than forecast last week, adding further evidence the labour market was tightening.

The number of Americans filing first-time unemployment benefits declined 10,000 to a seasonally adjusted 278,000 in the week ended November 1, the Labor Department reported today in Washington. The less volatile four week average declined 2,250 to 279,000, the lowest level since April 2000.

Thursday’s biggest newsmaker was the European Central Bank, which announced it was prepared to take additional steps to stimulate the spiraling Eurozone economy. ECB President Mario Draghi announced today the central bank was ready to inject up to €1 trillion of new liquidity into the currency union to stimulate growth and stave-off deflation.

The BOE, which held interest rates at a record low of 0.05 percent at this month’s rate meeting, said it was committed to its accommodative policy stance. According to Draghi, the central bank’s balance sheet will continue to expand in the coming months “under all universes.”

The euro declined in response, as the EURUSD fell to its lowest level since 2012. The pair touched an intraday low of 1.2405. It would subsequently consolidate at 1.2437, declining 0.34 percent. Support is likely found at 1.2437 and resistance at 1.2548.

The dollar also advanced against the British pound as the Bank of England maintained its long standing rate target at 0.5 percent, as expected. According to the National Institute of Economic and Social Research, the BOE likely won’t begin hiking interest rates until June of next year.

The GBPUSD declined 0.46 percent to 1.5894. The daily chart shows initial support at 1.5890. On the upside, resistance is ascending from 1.6044.

The dollar steadied against the Japanese yen after climbing to fresh seven-year highs. The USDJPY was little changed at 114.75. Support is likely found at 113.82 and resistance at 115.28.

The USDJPY has surged 5 percent since October 31 following clear indication from the Bank of Japan that additional stimulus measures would be needed to stave off deflation. In a surprise 5-4 split decision at last week’s rate meetings, the BOJ voted to expand its asset purchase program by 15 percent of GDP per year. These additional measures will be implemented at the start of next year.

By contrast, the United States Federal Reserve last week put an end its bond buying program, voting to reduce asset purchases one final time by $15 billion. The Fed will now focus on normalizing monetary policy in gradual steps as the economy continues to show signs of recovery.

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