News Column

US Dollar Rises On Policy Divergence, Ukraine Concerns

August 24, 2014

BRUSSELS (Alliance News) - The US dollar strengthened against the other major currencies in the Asian session on Monday as speeches by central bankers at the Jackson Hole economic summit over the weekend suggested policy divergence and as geopolitical concerns fueled haven flows.

Pledges of stimulus from European Central Bank President Mario Draghi and Bank of Japan governor Haruhiko Kuroda weakened the respective currencies, providing a shot in the arm for the dollar.

Yellen, one of the dovish Fed policymakers, was more balanced than expected in her speech at Jackson Hole. She reiterated her view that there is still significant slack in the US labour market. Yellen suggested that increases in the Federal funds rate target may come sooner than the Federal Reserve Open Market Committee currently expects and could then proceed at a more rapid pace.

European Central Bank President Mario Draghi indicated that policymakers are prepared to roll out more monetary stimulus measures to counter deflationary risks and boost demand in the ailing eurozone economy. Bank of Japan Governor Haruhiko Kuroda, while speaking at the annual Kansas City conference in Wyoming, said that Japan is committed to continuing the increasingly accommodative stance until the 2% inflation target is met and maintained in a sustainable manner.

Traders also moved into the safe haven currency amid escalating tensions between Russia and Ukraine.

A controversial Russian aid convoy pushed into eastern Ukraine without the permission of the Kiev government.

The US dollar rose to nearly a 1-year high of 1.3184 against the euro, from an early low of 1.3205. At last week's close, the greenback was trading at 1.3238 against the euro. If the greenback extend its uptrend, it is likely to find resistance around the 1.31 area.

Against the the Swiss franc and the yen, the greenback advanced to a 9-month high of 0.9177 and an 8-month high of 104.26 from early lows of 0.9157 and 104.12, respectively. The greenback may test resistance near 0.92 against the franc and 105.04 against the yen.

Moving away from an early low of 1.6559 against the pound, the greenback rallied to a 5-month high of 1.6534. On the upside, 1.64 is seen as next resistance level for the greenback.

Looking ahead, Ifo German business climate indicator for August is due in the European session.

In the New York session, Markit's US composite PMI for August and U.S new home sales for July are due to be released.

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Source: Alliance News

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