Week of Fear Boosts Dollar to Two-Year Record vs. Euro
The positive market sentiment, caused by last week’s European summit, completely evaporated this week, allowing the US dollar to gains against most of major currencies. Of course, the same risk aversion also boosted the yen, helping it to outperform the greenback. Against the euro, the US currency jumped to the highest level in two years.
The first major theme of this week was monetary policy decisions of central banks. The European Central Bank cut its main interest rate, while the Bank of England kept the key rate steady, but expanded the size of the asset purchase program. That was expected events. The interest rate cut of China’s central bank — that was a real surprise to all economists and traders. It sparked fear that the economy of the Asian nation is in worse state than was considered.
Another major theme for the week was employment data from the United States. The ADP employment report was surprisingly good, giving hope that non-farm payrolls would also be better than anticipated. In practice, the opposite has happened (US employers added fewer jobs than was expected), fueling fear that the global economy is experiencing slowdown. Some analyst argued that the employment figure was not bad enough to force the Federal Reserve into a third round of quantitative easing, meaning that the strength of the dollar is not threatened by monetary easing.
EUR/USD dropped from 1.2676 to 1.2283 this week and touched 1.2259 — the lowest price since July 1, 2010. GBP/USD fell from 1.5695 to 1.5486. USD/JPY was down from 79.85 to 79.66. AUD/USD slipped from 1.0262 to 1.0210 during this week.
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Earlier News About the US Dollar:
- US Dollar Heads Higher as Uncertainties Abound (2012-07-06)
- US Dollar Gains Amidst Rate Cuts from Central Banks (2012-07-05)
- US Dollar Softens as Factory Orders Rise (2012-07-03)
- US Dollar Rises as Uncertainty Shows Through (2012-07-02)
- US Dollar Pulls Back on Better News Out of Europe (2012-06-29)