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US Dollar Rebounds Sharply, but Bears still in Control

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US Dollar Rebounds Sharply, but Bears still in Control

The US dollar index rebounded sharply Friday after hitting a multi-month low, as investors reevaluated their positions amid global developments.

The dollar index, a weighted average of the greenback’s performance against six major currencies, advanced 0.65 percent to 79.88.

The markets were in risk-off mode Friday, as tensions in the Ukraine overshadowed market developments elsewhere. Investors grew weary after pro-Russia separatists in eastern Ukraine ignored a call from Russian President Vladimir Putin to postpone a referendum on independence. The referendum is scheduled for Sunday.

The GBPUSD was trading at 1.6847, down 0.5 percent. The pair soared to a fresh five-year high earlier in the week as economic data supported the view the Bank of England would raise interest rates early next year. The pound was unable to rally Friday despite strong data and a positive appraisal from the National Institute of Economic and Social Research.

UK manufacturing output rose 0.5 percent in March, the Office for National Statistics reported today. Year-on-year, manufacturing output rose 3.3 percent. Industrial production declined 0.1 percent in March but was up 2.3 percent year-on-year.

The NIESR revised its growth outlook on the UK economy from 2.5 percent to 2.9 percent, citing a rapidly improving labour market and steady consumer price inflation. The UK economy is expected to regain its pre-recession peak in the next few months.

The EURUSD fell 0.59 percent to 1.3756, as expectations for a Eurozone rate cut intensified. The European Central Bank on Thursday opted to leave the benchmark interest rate at 0.25 percent. However, ECB President Mario Draghi said the central bank is prepared to act at its next meeting should deflationary pressures continue to persist.

The US dollar rebounded strongly against the loonie after Canadian jobs data disappointed. The Canadian economy lost nearly 29,000 jobs in April after employers added nearly 43,000 payrolls the prior month, Statistics Canada reported today. StatsCan said job growth has been negligible since August 2013,

The USDCAD climbed 0.62 percent to 1.0898. The pair extended its gains above the 1.09 region briefly in intraday trade, reaching a session high of 1.0915.

Elsewhere, the US dollar was enjoying a bullish bias versus the Japanese yen. In the afternoon session the USDJPY pair was range-bound between 101.5570-101.8600. The pair is currently at 101.8015, up 0.14 percent.

The outlook on the US dollar remains bearish, as investors search for clues about the future of US monetary policy. The forex market has been shut-out of information that can help determine when the Federal Reserve plans on raising the interest rate.

The US economy will expand at a faster rate this year, which will continue to drive down the unemployment rate, Yellen said Wednesday at the Joint Economic Committee.

US GDP growth was flat in the first quarter, as inclement weather shut down the economic growth engine. Recent data suggest the economy rebounded sharply in April, led by the fastest pace of job creation in more than two years.

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