Forex »

US Dollar Index Consolidates at 1-Year High in Light Trade

H.S. Borji
Share on StockTwits
Published on
US Dollar Index Consolidates at 1-Year High in Light Trade

The US dollar remained elevated against a basket of currencies Monday, as North American traders paused to observe Labour Day ahead of a flurry of economic data later in the week.

The US dollar index, a weighted average of the greenback’s performance against six major peers, held steady at 82.72. The index had risen 0.31 percent on Friday to set a fresh one-year high.

The index has appreciated 3.8 percent since the beginning of July, as a faster US recovery boosted speculation the Federal Reserve may consider normalizing monetary policy earlier than previously assumed.

The Federal Reserve has kept its target for the overnight rate steady at 0.25 percent since the height of the financial crisis. With central bankers expected to vote in favour of eliminating quantitative easing in October, investors are speculating whether a rate-hike could materialize in the first half of next year.

As expected, the United States had no economic data to report on Labour Day. Trade volumes were relatively light, despite a flurry of economic releases from Europe.

Markit Group reported disappointing Eurozone PMI figures on Monday. The Eurozone manufacturing industry fell to a 13-month low in August, led by a broad slowdown across the currency union. The headline PMI indicator fell 1.1 percentage points to 50.7.

Factory output in Germany fell to an 11-month low, as production rose at the slowest pace in 14 months. This led to a further reduction in manufacturing employment, which declined for a third consecutive month. Germany’s headline PMI reading fell 1 percentage point to 51.4.

The euro, already reeling from the growing threat of civil war in Ukraine, declined to a one-year low against the US dollar. The EURUSD sunk to an intraday low of 1.3119, its lowest level since September 6, 2013. The pair would subsequently consolidate at 1.3133. The pair faces initial support at 1.3110 and resistance at 1.3219.

The greenback weakened against the British pound, despite another disappointing round of disappointing UK manufacturing data. UK manufacturing activity fell to a 14-month low in August, as output and new order growth continued to deteriorate.

Markit’s gauge of UK manufacturing activity fell 2.3 percentage points to 52.5.
The GBPUSD advanced 0.10 percent to 1.6612. The pair faces initial support at 1.6568 and resistance at 1.6619.

In other trading, the dollar edged higher against the Japanese yen, as the USDJPY advanced 0.17 percent to 104.26. The pair is testing initial resistance at 104.26. On the downside, initial support is likely found at 103.78.

America’s economic calendar heats up on Tuesday with two manufacturing PMIs courtesy of Markit Group and the Institute for Supply Management. The government will also report on July construction spending.

On Wednesday the government will report on July factory orders.

On Thursday Markit Group and ISM will each report on the service economy.

The week’s biggest release comes Friday when the Labor Department reports on August nonfarm payrolls. Economists anticipate the addition of 200,000 nonfarm payrolls last month, which would mark the seventh consecutive month job creation was at or above the 200,000 mark. The unemployment rate is forecast to fall back to 6.1 percent.

Share on StockTwits