Dollar gains, euro takes a pounding

The US dollar has gained against many currencies in the past year and has picked up pace on the back of positive US economic data [Xinhua]

The US dollar has gained against many currencies in the past year and has picked up pace on the back of positive US economic data [Xinhua]

A mixture of positive US economic data, a backtrack in Chinese markets, and worries about the impact of the Greek debt crisis on Europe all came together to produce a perfect storm of the greenback’s continuing rally against other currencies.

On Monday, the euro regained half a per cent to $1.0827 after slumping to a three-month low of $1.0809.

But it fell again to $1.0814 in Asian trading early on Tuesday. At the same time last year, the euro stood at $1.34.

It also took a pummeling against the Sterling pound, which registered at its highest level against the European currency in a year. On Tuesday, the Sterling stood at 1.4387 euros, a slight dip from its 1.44 high a day earlier.

This came as the dollar also bit a three-month high against a basket of currencies which included the Japanese Yen, Sterling pound, Swedish Krona, Canadian dollar, Australian dollar, the New Zealand dollar (kiwi), the Swiss franc and the euro.

Between July 9 and July 21, the dollar rose four per cent against the yen to hit 124.45 on Tuesday morning; year-on-year, the greenback has strengthened by nearly 23 per cent.

The US dollar also registered a six-year high against the Canadian dollar. It had been teetering just below 1.30 last week. In early Tuesday trading in Asia, the US dollar traded at 1.3004.

The Canadian dollar has also been weakened by the central bank’s lowering of interest rates. The Canadian economic outlook also took a beating when the International Monetary Fund cut the growth forecast from 2.2 per cent to 1.5 per cent.

Canada which at first appeared immune to the global financial crisis suffered a recession in Q1 of this year.

Almighty dollar?

No, try almighty Yellen. That would be Janet Yellen, head of the US Federal Reserve.

On July 15, she told Congress that the US economy was recovering; she also appeared to show a commitment that interest rates must eventually be raised in late 2015, early 2016 at the latest.

A growing number of market analysts believe that interest rates will be gradually raised beginning September 2015.

A rise in interest rates means that the US economy has almost fully recovered from the 2007/2008 sub-prime mortgage crisis which spawned global financial turbulence.

They also point to the 5.3 per cent June unemployment rate, which fell from 5.5 per cent in May – the lowest rate since the financial crisis hit in 2009, as evidence that the economy is on the right track.

According to US Department of Labor statistics released earlier this month, the economy added 223,000 jobs. However, the same data showed that the overall size of the workforce had shrunk, indicating that the economy is not at full steam yet.

The Federal Reserve has not raised rates since 2005.

The BRICS Post

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