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US Dollar Index Sinks to 6 ½ Month Low; Pound, Euro Pull Ahead

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US Dollar Index Sinks to 6 ½ Month Low; Pound, Euro Pull Ahead

The US dollar suffered a broad setback Tuesday, as European and North American rivals continued to pull ahead following the release of key data.

The US dollar index, a weighted average of the greenback’s performance versus six major currencies, fell 0.45 percent to 79.13, a six-and-a-half-month low.

The dollar received temporary reprieve on Friday when the Labor Department said employment rose at the fastest pace in more than two years. The US economy generated 288,000 new jobs in April, with the unemployment rate plunging to 6.3 percent as more people exited the labour force.

Economic data from Europe supported the euro and British pound on Tuesday. Markit Group’s gauge of Eurozone service activity rose 0.9 percentage points to 53.1, as output expanded across the big-four nations. Meanwhile, Eurozone retail sales rose 0.3 percent in March and 0.9 percent annually, the European Commission confirmed today.

The EURUSD pair rose to a session high of 1.3951, a seven-week high. The pair would later consolidate at 1.3934, a gain of 0.42 percent.

The British pound climbed to a fresh five-year high versus the greenback after Markit Group said the UK service economy expanded at a robust pace in April. Markit’s services PMI increased from 57.6 to 58.7, led by a sharp rebound in new business. Employment increased for the sixteenth consecutive month and at the fastest rate since October 2013, Markit data showed.

The GBPUSD pair advanced 0.74 percent to 1.6994, a session high. The pair overcame three daily resistances in the process (1.6878, 1.6920 and 1.6962).

Markit Group reported on Monday the US service economy accelerated at a rapid pace in April, although the pace of job creation fell to a 13-month low. The findings contradict last week’s employment report, which showed service providers generated 220,000 new jobs in April.

The Canadian dollar drifted higher Tuesday as Statistics Canada reported broad improvements in international merchandise trade. The country’s trade surplus shrank from $0.085 billion to $0.08 billion in March, with exports and imports rising over the previous month.

The USDCAD pair declined 0.5 percent to 1.0905, the lowest level since April 10. Initial resistance is located at 1.0973, followed by 1.1000 and 1.1028, according to the daily chart.

The USDJPY fell sharply, extending Monday’s losses that resulted from weak Chinese manufacturing data. The pair fell 0.6 percent to 101.5395, the lowest level since April 14.

The US dollar faces a light week in terms of economic data. Federal Reserve Chair Janet Yellen will testify before the Joint Economic Committee Wednesday. Her testimony, it is hoped, will shed some light on monetary policy, and whether the central bank will keep borrowing costs at record lows for the foreseeable future.

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