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US Dollar Eyes 12-Month High

H.S. Borji
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US Dollar Eyes 12-Month High

The US dollar advanced further against a basket of currencies on Monday, as expectations of added stimulus in Japan and the Eurozone contrasted with growing signs the US Federal Reserve was considering a rate hike earlier than previously estimated.

The US dollar index, a weighted average of the greenback’s performance against six major currencies, advanced 0.2 percent to 82.50, easing off an intraday high of 0.8259. The dollar index has advanced more than 1.1 percent over the past five days and is pacing toward a fresh 12-month high.

The dollar is trading at its highest level since September 2013 when the index climbed to 82.63.

The USDJPY edged up 0.07 percent to 103.99. The pair faces initial support at 103.54 and resistance at 104.25.

The EURUSD tumbled 0.29 percent to 1.3201, remaining near 11-month lows. The pair faces initial support at 1.3192 and resistance at 1.3270.

In policy news, Bank of Japan Governor Haruhiko Kuroda pledged over the weekend the central bank would do whatever it takes to stave off deflation, adding that more aggressive monetary policy may be needed for “some time.”

Speaking at the annual Jackson Hole Symposium on Saturday, Kuroda said the public wasn’t convinced the central bank would reach its 2 percent inflation target any time soon. This suggests monetary policy will remain “increasingly accommodative” for some time until “the 2 percent inflation target is met and maintained in a sustainable manner,” Kuroda said.

The BOJ last year deployed an unprecedented monetary stimulus package designed to double the monetary base in less than two years. The central bank believed these efforts would bring annual inflation to 2 percent in approximately two years.

Meanwhile, the head of the European Central Bank said he was prepared to use all available tools to fight weak inflation in the Eurozone.

“Inflation has been on a downward path from around 2.5% in the summer of 2012 to 0.4% most recently,” reads the official script of ECB President Mario Draghi’s Jackson Hole speech. “Acknowledging this, the Governing Council would use also unconventional instruments to safeguard the firm anchoring of inflation expectations over the medium- to long-term.”

Draghi’s actual comments, however, implied the central banker was done justifying low inflation.

“I have given several reason for this downward path inflation… I have said in principle most of these effects should in the end wash out because most of them are temporary in nature… But I also said if this period of low inflation were to last for a prolonged period of time, the risk to price stability would increase.”

The Eurozone has been mired in “dangerously low” inflation of below 1 percent for ten consecutive months.

At the other end of the table was Federal Reserve Chair Janet Yellen, who sounded much more hawkish in comparison at last week’s summit. Yellen said the central bank was prepared to adjust monetary policy should the evidence become clearer. This includes raising interest rates sooner than expected or keeping them near zero for even longer.

Precious metals declined further on Monday, with gold approaching last week’s two-month low. Gold futures declined $2.10 to $1,278.10 an ounce. Spot gold tumbled $4.67 to $1,276.43 an ounce.

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