US Dollar Retreats on Prospects of Premature Rate Hike by Fed

Edited by Vani Rao

Euro and JPY rise 0.12% and 0.14%, respectively, against the US dollar

The Euro traded higher against the US dollar on Friday, March 21, 2014, as investors factored in the ongoing geo-political tensions between the West and Ukraine. Another major factor for the decline of the US dollar was the possibility of an earlier-than-expected rate hike by the Federal Reserve.

However, the gains in the Euro were limited on account of current account data released by the Eurozone on Friday, March 21, 2014. The data showed that the Eurozone’s current account surplus grew to €25.3 billion in January from €20.0 billion in December. This is mainly attributed to the higher surpluses on goods and services. Analysts had expected the current account surplus to shrink to €18.4 billion in January.

Meanwhile, the US dollar had risen to its two-week high against the Euro on Thursday, March 20, 2014. For the week ended Friday, March 21, the US dollar rose 0.94% against the Euro, triggered by the mid-week rally after Fed Chairperson Janet Yellen presented the economic outlook.

On Friday, March 21, 2014, the EUR/USD pair fluctuated between 1.3766 and 1.3811, before closing Friday’s trading session at 1.3794, as indicated in the graph below.

At the time of last reporting, the EUR/USD pair was trading 0.04% higher at 1.3802.

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The Eurozone and the US are scheduled to release key data in the next week, which is likely to cause significant movements in the currency market globally. Analysts will be looking forward to changes in the relative price of the US and the Euro in the coming week in the light of key data releases by both these economies.

On Monday, March 24, 2014, the Eurozone is expected to release data on manufacturing and service sector activity, a leading indicator of economic health. On the same day, the US will release preliminary data on manufacturing activity.

On March 25, in the Eurozone, Germany will release the Institute for Ifo report on business climate.

On March 26, in the Eurozone, Germany will release the Gfk report on consumer climate.

Meanwhile, on March 27, the Eurozone is likely to announce data on M3 money supply. Meanwhile, the US is to publish the weekly report on initial jobless claims and private sector data on home sales.

Finally, on March 28, Germany will announce preliminary data on consumer inflation, and France will report data on consumer spending. Meanwhile, the US will announce revised data on consumer sentiment along with the data on personal spending.

GBP/USD

The US dollar ended the week close to its five-week high against the GBP on Friday, March 21, 2014. Demand for the US dollar was boosted by growing anticipations that the Federal Reserve could raise interest rates six months after it completes its bond-buying program.

The GBP/USD pair traded between 1.6476 and 1.6520, before closing Friday’s trading session at 1.6486, down 0.12%. For the week ended March 21, the GBP/USD pair fell by 0.91%.

At the time of final reporting the pair was trading at 1.6487, down 0.04%

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The UK and the US are scheduled to release key data in the forthcoming week, which are likely to cause significant movements in the currency market. Analysts will be looking forward to changes in the relative price of the US and the GBP in the coming week in the light of key data releases by both the economies. However, crucial data releases by both the US and the UK are expected to have a significant impact on the US dollar in the weak ahead.

On March 25, the UK is expected to release data on the consumer price inflation, an important measure of economy’s overall inflation, along with the private sector data on retail sales.

On Thursday, March 27, the UK is slated to produce official data on retail sales, an important indicator of consumer spending and overall economic activity.

Finally, on Friday, March 28, the UK is scheduled to release data on fourth-quarter economic growth as well as data on the current account.

USD/JPY

The US dollar posted losses against the Japanese yen on Friday, as the demand for the safe haven consolidated amid mounting political unrest between the West and Russia over Ukraine. Traders were cautious on account of the political standoff between the West and Russia following the invasion of Crimea, after the US toughened its sanctions on Moscow.

During the week, the USD/JPY pair rose 0.34%, triggered by prospects the sooner-than-expected rate hikes by the Federal Reserve. However, the USD/JPY pair snapped some of its gains from the previous two trading sessions, to end Friday’s session on a lower note.

During the session on March 21, 2014, the pair oscillated between 102.02 and 102.41, before finishing the day 0.14% lower at 102.25, as shown in the graph below.

At the time of reporting, USD/JPY was trading at 102.47, up 0.20%.

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Analysts will be looking forward to the currency fluctuations between the USD/JPY pair ahead of data releases by Japan and the US in the coming week. During the week, on March 28, Japan is scheduled to announce series of key data on household spending, inflation, and retail sales. Meanwhile, the US will report data on personal spending and consumer sentiment.

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