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Positive Sentiment Lifts US dollar

H.S. Borji
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Positive Sentiment Lifts US dollar

The US dollar advanced for a second consecutive day against a basket of currencies, as mixed economic data didn’t detract from positive sentiment about US recovery.

The US dollar index, a weighted average of the greenback’s performance versus six commonly traded peers, advanced 0.2 percent to 80.55. The index has advanced 0.7 percent since July 10.

In economic data, US industrial production advanced at a slower rate than forecast in June, as manufacturing output increased only slightly and utilities production declined for the fifth consecutive month.

Industrial production increased 0.2 percent in June, half the rate of forecasts.

Capacity utilization – a gauge of how fully companies are utilizing their factory resources – was unchanged at 79.1 percent.

The National Association of Home Builders provided a more upbeat outlook on the housing recovery, reporting that homebuilder confidence rose to a six-month high in July. The housing market index increased four points to 53, as sales conditions, future sales expectations and homebuyer traffic all increased.

July marked the first time since January homebuilder confidence was above the 50 mark that separates good sales conditions from poor.

The dollar was supported by Janet Yellen’s recent testimony before the Committee on Banking, Housing, and Urban Affairs. The Federal Reserve Chairman on Tuesday tempered expectations about economic growth, but left the door open to an earlier than expected rate hike should the economy improve more quickly than anticipated.

“If the labor market continues to improve more quickly than anticipated by the Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned,” Yellen said on Tuesday.

The central bank has held interest rates near zero since 2008.

The labour market has improved markedly over the past year, as the unemployment rate has dropped from 7.5 percent to 6.1 percent .US businesses added 288,000 payrolls last month. June marked the fifth consecutive month job growth has been above 200,000.

In currency news, the USDJPY was little changed Wednesday, treading water around 101.68. The daily chart shows initial support at 101.49 and resistance at 101.81.

The dollar advanced slightly against the British pound amid mixed UK data.

Unemployment in the UK declined 36,300 in June, the Office for National Statistics reported today. The unemployment rate in the three months through May was unchanged at 6.5 percent.

However, average earnings rose less than forecast between March and April, advancing 0.7 percent over that period. Economists forecast a gain of 0.8 percent.

Including bonuses, average earnings increased only 0.3 percent, compared to forecasts calling for 0.5 percent.

The GBPUSD declined 0.06 percent to 1.7132. Initial support is likely found at 1.7071 and resistance at 1.7204.

The EURUSD declined for a second consecutive day, falling 0.34 percent to 1.3522. Initial support is likely found at 1.3480 and resistance at 1.3612.

The euro came under pressure Tuesday after the ZEW Institute said German economic sentiment declined for a seventh straight month. The economic sentiment index fell 2.7 points to 27.1, its lowest level since December 2012.

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