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US Dollar Reaches Higher Ground as Consumer Confidence Appreciates

H.S. Borji
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US Dollar Reaches Higher Ground as Consumer Confidence Appreciates

The US dollar index advanced to fresh highs Tuesday, as a surge in consumer confidence reinforced expectations the Federal Reserve will deliver an upbeat assessment of the economic recovery on Wednesday.

The US dollar index, a weighted average of the greenback’s performance against a basket of currencies, increased 0.21 percent to 81.20. The index has advanced more than 1.7 percent in July, driven higher by speculation the Federal Reserve may considering raising interest rates sooner than expected.

In economic data, US consumer confidence reached a nearly seven-year high this month, as strong employment growth boosted consumers’ assessment of the current climate and raised expectations business conditions would improve in the next six months.

The Conference Board’s monthly gauge of consumer confidence increased in July to 90.9 from 86.4. Economists forecast a reading of 85.5. The June estimate was revised upward from an initial reading of 85.2.

Today’s figure contrasts with a separate valuation of consumer sentiment released last week. Thomson Reuters and the University of Michigan said consumer sentiment declined in July, as expectations weakened for a third consecutive month.

The preliminary July reading on the consumer sentiment index was 81.3, down from 82.5 the previous month.

Reuters and the University of Michigan will publish the final estimate of the consumer sentiment index on Friday.

The rise in consumer confidence boosted an already upbeat assessment of the US economy, which has helped fuel the US dollar’s recent gains.

The Federal Reserve on Wednesday is expected to taper the monthly pace of bond purchasing by another $10 billion, paving the way for a final stimulus cut in October. The central bank, which has eased $4.3 trillion into the financial markets since 2009, is expected to announce a rate hike sometime by the middle of 2015.

Market participants are speculating about the timing of a first rate hike. Earlier this month Federal Reserve Bank of Dallas President Richard Fisher said interest rates could rise early next year or even sooner.

Separately, US house prices rose at a slower pace in May, as a slowdown in housing activity put a cap on price appreciation. The Standard & Poor’s/Case-Shiller index of house values in 20 US cities increased at an annual rate of 9.3 percent, following a 10.8 percent advance the previous month.

On Monday the National Association of Realtors said pending home sales declined 1.1 percent in June and 7.3 percent year-on-year, a sign the housing market was still struggling to regain momentum.

In currency news, the US dollar advanced further against the euro, as the EURUSD dipped 0.21 percent to 1.3412, its lowest level since September 2013. The pair faces initial support at 1.3410 and resistance at 1.3448.

The GBPUSD resumed its decline after a brief pause, falling 0.23 percent to 1.6946. The pair faces initial support at 1.6939 and resistance at 1.6999.
In UK data, British mortgage approvals climbed in June for the first time in five months, advancing 8 percent to 67,196.

The USDJPY advanced for the third time in four days, climbing 0.25 percent to 102.09. The pair faces initial support at 101.76 and resistance at 102.11.

Japanese consumer spending weakened in June, as retail trade advanced 0.4 percent, following a 4.6 percent gain the previous month. Compared to June 2013, retail trade was down 0.6 percent, official data showed.

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