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Dollar Index Climbs Higher, Disregards Dovish Fed Minutes

H.S. Borji
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The US dollar advanced against a basket of currencies on Thursday, as investors shifted their focus to the economic data amid signs the Federal Reserve will keep interest rates low for an extended period.

The US dollar index, a weighted average of the greenback against a basket of currencies, climbed 0.15 percent to 94.37.

The dollar gained momentum against the euro, which continued to drift below 1.14 US. The EURUSD fell 0.22 percent to 1.1379 after reaching an intraday high of 1.1455. The pair faces initial support at 1.1349 and resistance at 1.1435.

The greenback surged against its Canadian counterpart as oil prices resumed their descent. The USDCAD fell nearly 1 percent to 1.2534. The pair is looking to test the 1.2554 resistance. On the downside, initial support is likely found at 1.2395.

In economic data, US jobless claims declined more than forecast in the week ended February 14, a sign employers were hiring and retaining workers at a faster rate to keep up with demand. Jobless claims fell by 21,000 to a seasonally adjusted annual rate of 283,000. Economists forecast a decline to 293,000.

Separately, the Philadelphia Fed’s manufacturing index slowed in February to its lowest level in a year, painting a bleaker picture of the country’s manufacturing sector. The index fell to 5.2 in February from 6.4 in January. Economists forecast an increase to 9.3.

On Friday Markit Group will release its preliminary February manufacturing PMI. National manufacturing activity rebounded in January from 11-month lows, Markit reported earlier this month.

“Manufacturing continued to expand in January, but the sector remains in a lower gear compared to that seen last summer,” said Markit chief economist Chris Williamson in a statement earlier this month. “Factory output growth and job creation remain well below last year’s peaks, adding to the suspicion that the pace of economic expansion in the first quarter could even fall below the 2.6% rate seen in the final quarter of last year.”

The US dollar was supported on Thursday despite indications from the Federal Reserve that interest rates will remain low for an extended period. The minutes of the January 27-8 Federal Open Market Committee meetings showed policymakers were concerned about international headwinds and were prepared to keep interest rates at rock bottom longer than previously expected.

“Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time,” the minutes said.

The deliberations diverged from the January rate statement, which signaled that policymakers could begin normalizing interest rates by midyear. The federal funds rate has been held at near-zero since December 2008.

A dovish central bank could limit the dollar’s rally in the short-term, but probably won’t change the long-term uptrend. The Fed will probably be the first major central bank to begin raising interest rates, reflecting the US economy’s strong recovery over the last year.

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