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US Dollar Ending on a High Note

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US Dollar Ending on a High Note

The US dollar index is ending the week on a high note, poised to gain nearly half a percent since Monday on an improving domestic economy and monetary policy speculation surrounding the European Central Bank.

The US dollar index, a weighted average of the greenback’s performance versus six commonly traded peers, advanced 0.16 percent to 80.38, its highest level in six weeks.

The greenback was supported by stronger than forecast housing data, which reinforced the view the housing recovery was gaining traction after a volatile first quarter. New home sales advanced 6.4 percent to a seasonally adjusted annual rate of 433,000, the Commerce Department reported today. Economists forecast a gain of 4.2 percent to 425,000.

The National Association of Realtors reported on Thursday that existing home sales increased 1.3 percent in April.

Weaker Eurozone data this week helped the greenback advance markedly in Europe. By Friday, the EURUSD pair had declined to four-month lows, dropping 0.19 percent to 1.3629. The pair reached an intraday low of 1.3616.

The euro is facing increased pressure amid expectations the European Central Bank will reduce the benchmark lending rate at the June 5 policy meetings. According to a consensus of economists polled by Reuters this week, the ECB will do just that, as well as introduce negative deposit rates in an effort to stimulate growth and boost inflation.

The ECB was forced to cut the interest rate in half in November after consumer price inflation fell below 1 percent. The ECB, which targets inflation at just under 2 percent, has faced increasing pressure to act over the last seven months, as inflation continued to trend below the 1 percent “danger zone.”

The British pound fell further Friday, hitting an intraday low of 1.6813 US before recovering at 1.6824, declining 0.26 percent.

The dollar advanced for the third straight day versus the yen, touching 102.0000 in intraday trade. The USDJPY consolidated at 101.9740, advancing 0.24 percent. The pair has advanced 0.4 percent since Monday.

The US dollar declined versus the loonie after Canadian inflation reached the central bank’s 2 percent target for the first time in two years, further diminishing the chance of a rate cut. The USDCAD declined 0.25 percent to 1.0866, reversing a weekly gain.

The US markets will pause for Memorial Day on Monday. Trade heats up again on Tuesday with the release of durable goods orders, house prices, consumer confidence and services PMI. The government will produce its revised estimate of first quarter GDP growth on Thursday. Economists say the US economy probably contracted at a quarterly rate of 0.2 percent in the first three months of the year, down from an initial estimate of a 0.1 percent increase.

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