Dollar reaches three-month high as Fed’s economic remark
"This positive outlook from the U.S., from the Fed and much better data we have been recently seeing are giving you the impetus to get the euro-dollar lower," said Emma Lawson, a currency strategist at Morgan Stanley in London, in an interview on Bloomberg Television.
The Dollar Index, which the ICE futures exchange uses to track the greenback against the euro, yen, pound, franc, Canadian dollar and Swedish krona, rose 1.5 per cent to 77.721 this week, from 76.573 on December 11, the biggest rally since the five days ended June 5. The index touched 78.141 on Friday, the highest level since September 4.
The gauge of the dollar has appreciated 4.8 per cent from this year’s weakest level reached on November 26 as government figures showed the U.S. unemployment rate fell last month to 10 per cent and retail sales rose more than forecast.
Before the payrolls report on December 4, the greenback had fallen 20 percent from the 2009 peak reached in March as evidence of a global economic rebound spurred investors to buy higher-yielding assets funded with dollars.
"With that better economic data and better outlook, the U.S. dollar stops being the funding currency of choice as it was in 2009," Lawson said.
The dollar appreciated 1.9 per cent to $1.4338 per euro, from $1.4615 last week. It strengthened On Friday beyond $1.43 for the first time since September 4. The yen strengthened 0.4 per cent to 129.75 per euro, from 130.24. The U.S. currency advanced 1.6 per cent to 90.49 yen, from 89.10. The euro decreased 1.3 per cent to 88.74 U.K. pence.
Deterioration in the labour market is "abating," and household spending is increasing, the Fed said in its statement at the conclusion of its two-day meeting on December 16. Policy makers held the target rate for overnight lending between banks at zero to 0.25 percent.
Orders for U.S. durable goods increased 0.5 per cent in November after a 0.6 per cent drop in the previous month, according to the median forecast of 59 economists in a Bloomberg survey. The report from the Commerce Department is due December 24.
The Australian dollar was the biggest loser this week against the greenback among major currencies tracked by Bloomberg, dropping 2.5 per cent to 89.02 U.S. cents. Reserve Bank Deputy Governor Ric Battellino damped expectations for further rate boosts, saying this week monetary policy is back in "the normal range." The bank raised borrowing costs for three straight months beginning in October.
The yen fell against the dollar this week after the Bank of Japan said it won’t tolerate consumer price declines, spurring speculation the central bank will maintain a target lending rate of almost zero.
BOJ Governor Masaaki Shirakawa and his colleagues refrained from announcing more policy actions, choosing instead to watch the effect of a 10 trillion yen ($111 billion) lending program adopted two weeks ago after the government urged them to do more to fight deflation. The bank kept the target lending rate at 0.1 per cent, as forecast by all 19 economists in a Bloomberg survey.
The euro dropped 1.1 per cent this week to 1.4950 Swiss francs as the Swiss National Bank refrained from selling the currency, pushing it beyond 1.50 on Friday for the first time since a rally in March that led to an intervention.
The central bank changed its language on currency purchases at last week’s quarterly monetary-policy assessment, saying it will act to counter "any excessive" moves in the franc against the euro. At its September assessment, the bank said it would "continue to act decisively" to prevent "any" appreciation.
"It looks like the SNB did change the policy approach in terms of intervention defending a specific level," said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank in Toronto. "The new policy is more geared toward smoothing out currency moves rather than defending a specific level."
The franc tumbled 3.3 per cent against the euro on March 12, the largest drop since the common currency debuted in 1999, when the Swiss National Bank intervened to prevent a strengthening currency from undermining the economy.
The euro weakened versus the dollar this week as the ECB said on Friday banks may have to write down an additional ?187 billion ($268 billion) as loans to property companies and eastern European nations threaten the financial recovery.
Greece’s credit rating was cut by Standard & Poor’s, and the company threatened to take further action unless Prime Minister George Papandreou tackles the European Union’s largest budget deficit.