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USD: Dollar searches for higher ground

H.S. Borji
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USD: Dollar searches for higher ground

The US dollar rose to fresh multi-year highs Monday in trade-weighted terms, as investors continued to take bullish bets on the world’s most actively traded currency ahead of a slew of data releases this week.

The US dollar index, a weighted average of the greenback against a basket of currencies, surged 0.44 percent to 87.91. The index has been on a tear since July, gaining more than 10 percent over that period.

The EURUSD fell back below the 1.25 threshold Monday, as European Central Bank President Mario Draghi vowed once again to do whatever it takes to stimulate growth in the struggling Eurozone. The pair plunged 0.5 percent to 1.2459.

The GBPUSD continued its downfall, hitting a fresh 14-month low in intraday trade. The pair bottomed out at 1.5620 before consolidating at 1.5656, declining 0.1 percent. Cable has plunged 1.7 percent since last Wednesday and 6.4 percent in the last three months amid signs the Bank of England will hold off on adjusting monetary policy in the near future.

The USDJPY rallied to high of 117.01 before consolidating in the mid-116.00 region in the European trade. The outlook on Japan went from bad to worse overnight after the government said the economy contracted 1.6 percent annually in the third quarter, following a 7.3 percent drop the previous quarter. Economists forecast an increase of 2.1 percent.

The USDCAD was back above the 1.13 level, climbing 0.3 percent to 1.1310.

In US data, industrial production declined unexpectedly in October following a sharp rebound the previous month, as declining utilities and mining output outweighed an increase in manufacturing production.

Industrial production declined 0.1 percent, the Board of Governors of the Federal Reserve System reported today. Economists forecast an increase of 0.2 percent.

The capacity utilization rate, which measures how fully factories are utilizing their factory resources, tumbled to 78.9 percent from 79.2 percent.

Separately, manufacturing activity in the New York region continued to expand in November, as general business continued to improve on the strength of new orders and shipments.

The Federal Reserve Bank of New York’s manufacturing index rose to 10.16 from 6.17 in November, slightly below forecasts.

The health of the US economy will be put to the test this week, as government and industry bodies release several market-moving reports.

The National Association of Home Builders on Tuesday will release the closely followed housing market index, a gauge of homebuilder confidence.

The Commerce Department will also release headline housing figures Wednesday with a report on housing starts and building permits. Groundbreaking and building authorizations are forecast to increase in October, adding further evidence the housing recovery was beginning to mobilize.

The Federal Reserve on Wednesday will release the minutes of the October Federal Open Market Committee policy meetings, which put an end to the central bank’s quantitative easing program. The minutes could outline a strategy for when and how the central bank intends to begin adjusting interest rates.

On Thursday the Labor Department will report on consumer inflation for October. Headline inflation is forecast to ease to 1.6 percent from 1.7 percent. Core inflation is forecast to remain steady at 1.7 percent.

Separately, the National Association of Realtors will report on existing home sales.

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