Fed’s Outlook Optimistic
The US dollar hit a 3 ½ month high on Thursday (Dec 17) against the beleaguered euro which has been pressured by EU banking concerns and the downgrades of two member nations. The dollar was also helped by a more optimistic assessment of the US economy by the Federal Reserve. The FOMC left rates at record lows but said that it will allow several emergency measures to expire in February 2010. The euro was also stung by another Greek downgrade. On Wednesday Standard & Poor’s downgraded Greece’s rating from A- to BBB+ and said that measures announced by Prime Minister George Papandreou would not produce a sustainable reduction of sovereign debt. Roberto Mialich of Unicredit stated, “The problem for the euro is the mix of the (Fed) statement and the very strong concerns over Greece…. All the euro crosses have suffered.”
Greek Concerns Pressure Euro
The euro fell below $1.44 for the first time since September, struggling after the second Greek downgrade in a week. US data showing that job losses increased unexpectedly last week pared dollar gains. Many investors believe recovery in the euro zone will be prolonged and rocky. Hidetoshi Yanagihara of Mizuho Corporate Bank said, “The U.S. economy is picking up, and the Fed acknowledged this by saying it will stop most of its quantitative easing by Feb. 1, while the Greece issue might create a bad cloud over the euro zone economy.” The US dollar also gained more than 1% against the Australian dollar.
Dollar to Extend Gains
The greenback gained for the third straight day against the yen trading at 90.15 yen. The Aussie which has been helped by three rate hikes fell to a 10 week low trading at $0.8853. The ICE futures exchange’s Dollar Index gained the most in two weeks as investors closed bets against the dollar after the Fed statement. Some currency analysts look for the dollar to sustain recent gains. Steven Englander of Barclay’s stated, “It’s the first time in a year we look at the dollar with the potential to rise over an extended period. The same safe haven characteristics that helped the dollar in 2008, and hurt it from March through November, are helping it again. The gap in U.S. growth relative to Europe is beginning to widen.”
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