US economic growth spurs dollar gains
Edinburgh-Scotland (Oct 31) Central banks are giving investors the green light to buy dollars, pushing it to a three-week high against its major counterparts after the Federal Reserve ended its bond-purchase stimulus programme.
The greenback extended gains after reports showed the US economy expanded more than forecast in the third quarter and the four-week average of jobless claims fell to the least in more than 14 years.
The euro, set for its biggest annual drop since 2005, slid before a report on Friday that analysts said will show inflation remained below the European Central Bank’s target. Norway’s krone reached the lowest since 2009 and the yen weakened before a Bank of Japan policy meeting on Friday.
"Markets are moving back toward trading that theme of monetary-policy divergence" and pushing the dollar higher, said Peter Dragicevich, a currency strategist at Commonwealth Bank of Australia in London. "The Fed has surprised relative to the dovish expectations going into the meeting and is clearly looking toward policy normalisation."
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, advanced 0.2% to 1,071.63 at 8.38am New York time after being at 1,073.85, the strongest since October 6.
The dollar added 0.3% to $1.2595 per euro after appreciating to $1.2548, also the strongest level since October 6. The greenback rose 0.1% to ¥109,04 after touching ¥109.36, the highest since October 6. Japan’s currency appreciated 0.2% to 137.30 per euro.
Gross domestic product grew at a 3.5% annualised rate in the three months ended September after a 4.6% gain in the second quarter, Commerce Department figures showed on Thursday in Washington. It marked the strongest back-to-back readings since the last six months of 2003. The median forecast of 87 economists surveyed by Bloomberg called for a 3% advance.
The four-week average of jobless claims, a less-volatile measure than the weekly figure, fell to 281,000 in the period ended October 25, the lowest since May 2000, from 281,250 the week before, a Labour Department report showed on Thursday in Washington. Compared with the prior week, applications for benefits rose by 3,000 to 287,000.
The Federal Open Market Committee (FOMC) on Thursday dismissed recent turmoil in global markets and focused on "solid" US employment gains. It said the labour market has strengthened enough to withstand an end to its quantitative-easing programme and downplayed risks of slowing inflation.
The prospect of tighter policy in the US just as central banks including the ECB and Sweden’s Riksbank loosen theirs to avert deflation has propelled the US currency higher. The dollar has climbed versus all of its 16 major counterparts this year. Its gains for 2014 range from 0.6% versus the won to 13% against Sweden’s krona. "Overall the FOMC statement appears consistent with our view that the Fed will begin to raise rates from the middle of next year," Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in London, said.
The Bloomberg dollar index dropped this month on concern slowing global growth would spill over into the US.
Source: BDlive
