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US Dollar Index Higher as Greenback Climbs Versus Euro

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US Dollar Index Higher as Greenback Climbs Versus Euro

The US dollar index edged higher Thursday, rebounding from a six-and-a-half month low amid signs Russian President Vladimir Putin was taking steps to diffuse escalating conflict in the Ukraine.

The US dollar index, a weighted average of the greenback’s performance versus six major peers, rose 0.21 percent to 79.37. Broad weakness has underscored the dollar’s performance in recent weeks, helping lift the British pound, euro and Canadian dollar to fresh highs.

On Thursday the dollar was trading higher versus the euro, which was reacting to the latest rate decision from the European Central Bank. The ECB opted to hold the benchmark lending rate at 0.25 percent, as President Mario Draghi hinted at a possible policy change as early as June.

The ECB is “dissatisfied about the projected path of inflation,” Draghi said today, and that it is “not resigned to have too low inflation for too long a time.”

The EURUSD pair declined 0.34 percent to 1.3865, after hitting a daily low of 1.3851. Support is likely found at 1.3860. Technical resistance is likely found at 1.3925.

The GBPUSD eased off its recent highs, consolidating at 1.6948. The pair hit a daily high of 1.6976. The pound faces an active day Friday, with National Statistics set to report on trade and factory production. The National Institute of Economic and Social Research will provide its GDP estimate for the period February-April.

The USDCAD declined for the third time in four days, falling 0.37 percent to 1.0857. The pair has shed more than 1.1 percent over the past five days.

The USDJPY fell back to 101.6650, down 0.2 percent. The pair edged higher Wednesday after Russia’s Putin deflated fears Ukraine would plunge into civil war. On Wednesday Putin said Russia had withdrawn its military from the border, and called on separatists in the eastern part of the country to postpone their referendum on independence.

Escalating conflict in the Ukraine has pitted the United States against Russia in what has been described as the most far-reaching east-west stand-off since the end of the Cold War. The stand-off has taken its toll on the US dollar, as investors fear the US may become more directly involved in the crisis.

At home, the greenback continues to face headwinds, as investors assess the pace of US recovery and speculate about the Federal Reserve’s next course of action. The Fed has given mixed signals about interest rates, leaving investors torn between official policy statements and the latest batch of policymakers’ forecasts.

The markets received very little new information Wednesday when Fed Chair Janet Yellen testified before the Joint Economic Committee. Yellen reiterated the Fed’s commitment to reducing the pace of monthly bond purchasing and noted policymakers’ dissatisfaction with the housing recovery. According to Yellen, the US economy is expected to accelerate faster in 2014, which will continue to drive down unemployment and bring inflation closer toward the 2 percent target.

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