US Dollar edges higher against major currencies

New York (Jan 25)  The Dollar edged higher against the other major currencies on Friday, as expectations for additional stimulus measures in the Euro zone and Japan led to increased support for the greenback. EUR/USD fell 0.60 % to 1.0793 from an opening price of 1.0858.

The Euro remained under pressure after European Central Bank President Mario Draghi said on Thursday that it would be necessary to “review and reconsider” the bank’s monetary policy stance at its next meeting in March, when new economic projections become available. This was followed by weaker than expected German manufacturing figures and PMI falling to 52.1 from 53.2 and 55.4 from 56.0 respectively.

The US dollar dropped to 10-day lows against its Canadian counterpart on Friday, as a rebound in oil prices gave the Canadian currency short-term relief, although the greenback remained broadly supported. GBP/CAD recovered early losses to close at 2.0290.

China's central bank faces a tough balancing act in trying to ease credit in the financial system without adding to pressures weakening the Chinese currency. Central bank officials delayed using a traditional credit-easing tool for fear that it could add more downward pressure on the Yuan.

We have a busy week ahead in the shape of central bank meetings and data; the FOMC are meeting on Wednesday and Bank of Japan's interest rate meeting takes place on Friday. This will be the first time we get an idea of the US reaction to the turmoil in the markets at the start of this year, while in Japan there are increasing worries of further stimulus being undertaken.

UK News

The pound made gains against the US dollar and the Euro on Friday, however gains were expected to remain limited after the release of mixed UK economic reports and strong demand for the greenback.

Core retail sales, which exclude auto sales and fuel, fell 0.9% in December, compared with expectations for a negative 0.3% and after a revised 1.3% increase in November.

A separate report showed that UK public sector net borrowing rose by £6.87 billion in December - less than the expected increase of £10.35 billion. Public sector net borrowing climbed by £12.94 billion in November, whose figure was revised from a previously estimated gain of £13.56 billion.

GBP/USD touched 1.4339 during European morning trade, the highest since January 19th. The pair subsequently consolidated at 1.4284, gaining 0.46% during the session. Cable is likely to find support at 1.4078, Thursday’s low and the lowest price seenin seven years. Resistance stands at 1.4341, the high of January 19.

Sterling was also higher against the euro, with GBP/EUR rising 0.73% to 1.3175 in early morning trade and printing a high of 1.3246 mid-afternoon with the Euro continuing to lose ground . This loss was largely accredited to Draghi’s comments on Thursday and again on Friday morning stating the bank has “plenty of instruments” to reach price stability in the euro area and that it has “the determination, the willingness and the capacity of the Governing Council to act and deploy these instruments.”

Source: UnderCurrent