News Column

US Dollar Strengthens Amid Monetary Policy Expectations

September 4, 2014



BRUSSELS (Alliance News) - The US dollar strengthened against the other major currencies and held steady thereafter in the Asian session on Friday, as the buck firmed up on expectations of monetary policy normalization in the wake of strong US data, even as the European Central Bank eased policy further.

Data from payroll processor ADP showed on Thursday that another notable increase in US private sector employment in the month of August, the pace of job growth once again came in below economist estimates.

ADP said private sector employment rose by 204,000 jobs in August following a downwardly revised increase of 212,000 jobs in July.

Data from the Commerce Department showed that US trade deficit unexpectedly came in slightly narrower in the month of July, reflecting moderate increases in the value of both imports and exports.

Data from the Labor Department showed that Labor productivity in the US increased by less than previously estimated in the second quarter. Another Labor Department report also showed that first-time claims for US unemployment benefits rose by slightly more than expected in the week ended August 30th.The report said initial jobless claims edged up to 302,000, an increase of 4,000 from the previous week's unrevised level of 298,000. Jobless claims had been expected to tick up to 300,000.

The European Central Bank on Thursday cut its key interest rates in a surprise move, after holding them steady in the previous two months, as euro area inflation is expected to slow further in the coming months. The Governing Council, led by President Mario Draghi, slashed the refinancing rate to a record low 0.05% from 0.15%, following its policy meeting in Frankfurt. In June, the bank had cut the rate.

The bank reduced the deposit rate to -0.20% from -0.10%. In June, the bank had slashed the rate from zero to negative, which in effect meant charging Eurozone banks for parking excess funds at the ECB, which was a first for a leading central bank.

Traders now focus on the US monthly jobs report for August to be released in the New York session. Analysts expect an addition of 230,000 jobs to non-farm payrolls.

The US dollar rose against the other major currencies in the New York session overnight.

In Asian trading, the US dollar strengthened to 105.70 for the first time since October 2008 against the yen, from an early low of 105.22 and held steady thereafter.

The greenback, which ended yesterday's deals at 0.9315 against the Swiss franc, rallied to a 1-year high of 0.9335 and held steady thereafter.

Against the euro, the greenback edged up to 1.2921 from an early low of 1.2944 and held steady thereafter.

Moving away from an early low of 1.6330 against the pound, the greenback appreciated to a 7-month high of 1.6286 and held steady thereafter.

German industrial production for July and final Eurozone GDP data are due to be released in the European session. At 10:00 am ET, Canada Ivey's purchasing managers index or August is due.



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Source: Alliance News


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