As the U.S. Economy is following an upward trend, it is only logical that the dollar would follow in its footsteps, and consequently, the dollar has indeed stolen the limelight this week. It rose to a 10-month high and continued to strengthen its position against most foreign currencies.
On Wednesday, the dollar index managed to rise to 81.545 on the strong waves of the US growth figures as well as rate rise prospects that should occur sooner than economists had expected.
Another important marker of the dollar’s strength, the index (a measurement of how the dollar fares against all other major currencies) was up 0.3 percent over the week at 81.3 on Friday.
Stephen Gallo, BMO European Head of Currency Strategy explained that the consensus was now shifting and that it seems that the first months of 2015 would be bringing a rate hike within its first six months. He added that the only major split in the big bond market and the FX players is between the first and the second quarter.
Gallo also stated that, in spite of the rejoicing data, there still remain many uncertainties connected to the U.S. dollar. In his opinion, the Fed should guide any quantitative easing unwinding with great care.
During this week, the Federal Reserve went on to taper its QE program as the U.S. growth data for the second quarter was showing a 4 percent GDP on an annualized basis.
On Friday, the dollar did experience a drop against other major foreign currencies. This drop could be explained by the fact that non-farm payrolls data underlined a reduced number of added jobs by U.S. employers than economists had expected.
Earlier this week, the euro experienced an eight-month low against the U.S. dollar while the Yen weakened 0.6 percent against the dollar over the five trading days.
The European Central Bank is committed to its efforts of boosting growth via specially designed policy measures, while U.S. and U.K. banks ponder rate rises.
Due to continuing tensions in both Ukraine and Russia, as well as the economic sanctions that the E.U. has placed on Russia, the dollar has gained strength against the ruble over the last week.
According to Phyllis Papadavid, currency strategist as BNP Paribas, the dollar is looking better than the pound and it seems that it is in a position where its strength will only continue to grow. He added that the dollar certainly stole the limelight from the sterling.