Dollar Supported by Positive Fed Assessment
Currency experts expect the US dollar to hold onto last week’s gains. Recently the dollar has been supported by evidence of a stable US recovery and the Fed’s willingness to withdraw emergency measures in February 2010. Despite the fact that the Fed has repeatedly said it would keep rates at record lows positive US data has prompted speculation that the Fed may raise rates sooner than expected. The year end sell off of assets that have gained over the year such as stocks, commodities and emerging currencies has broadly benefited the dollar. The ICE futures’ dollar index .DXY which tracks the dollar’s value against a basket of six major currencies has been rising since early December although it has fallen 4.3% during 2009. For the week the DXY is up 1.9% the best weekly gain since April.
Pakistan Coup Rumors Trigger Safe Haven Flight
The troubled euro is on track for its worst weekly performance in eight months. The euro fell 2.4% this week against the dollar. The euro has been pressured by Greek sovereign debt concerns and a Standard and Poor’s downgrade. Austrian banking woes have also stung the euro in currency markets. Todd Elmer of CitiFX stated, “The euro is feeling the ill-effects of ongoing strains in Greece and we doubt that this euro-negative factor will soon abate.” Safe haven currencies rose on Friday after rumors of a coup in Pakistan. Currency markets were also shaken after it was reported that 11 Iranian troops had entered Iraqi territory and raised the Iranian flag at a disputed oilfield.
US Third Quarter GDP Report Due Next Week
The flight to safe haven sent the Swiss Franc and the Japanese yen higher. The yen gained on the dollar, euro and the Aussie dollar. The Swiss franc, widely seen as a safe haven currency gained on the euro. Although the currencies regained most losses the euro was down 0.4% against the franc at 1.4957 francs and the dollar was down 0.6% against the yen at 89.46 yen. There is a slew of US data to be released this week and investors are sure to be paying close attention. Third quarter GDP reports are due along with housing data, and reports on personal income and spending.
