The dollar strengthened considerably against its peers today as market outlook was pressured causing the market to avert risk as a result of discouraging euro zone inflation figures, worry over strength of China’s economy and increasing conflict in the Middle East. China pumped 130 billion yuan into its banking system in order to stabilize currency and equity markets. The US Dollar Index was up 0.77% trading at 99.70.
The euro weakened against the dollar with the pair down 1.07% trading at 1.0715 off its session low of 1.0710 after having come off its session high of 1.0838 reached earlier in the day. The euro was weighed down by data released by Eurostat which revealed that the annual rate of inflation for the euro zone was up only 0.2% in December just shy of expectations for an increase of 0.3% following the same increase in November. Core inflation increased 0.9% in December while an increase of 1.0% was expected, also matching November’s reading. The European Central Bank was pushed to increase its stimulus measures as a result of the disappointing inflation data in order to jump start economic growth within the euro zone. The ECB’s target for annual inflation remains near but just under 2%. Germany’s unemployment rate held at an historic low of 6.3% in December matching forecasts.
The pound weakened against the dollar with the pair down 0.5% trading at 1.4640 off its session low of 1.4637 after having come off its session high of 1.4724 reached earlier in the day. The pound had reached near 8 month lows against a stronger dollar despite favorable UK construction figures. The market overlooked data released by Markit which revealed that the UK manufacturing purchasing managers’ index increased from a reading of 55.3 in November to 57.8 in December. Experts had forecast an increase to 56.0 in December.
The yen strengthened against the dollar with the pair down 0.31% trading at 119.10 off its session low of 118.79 after having come off its session high of 119.70 reached earlier in the day. The yen remained supported by safe haven demand following Monday’s data release revealing a drop in China’s Caixin manufacturing purchasing managers’ index from 48.6 in November to 48.2 in December. The market also remained on edge amid ongoing conflict in the Middle East after Saudi Arabia severed diplomatic ties to Iran.
The Australian, New Zealand and Canadian dollars weakened against the greenback as market outlook was tarnished by unrest in the Middle East and oil prices extended losses from the previous session to reach 2 week lows. The Aussie was down 0.75% against the dollar with the pair trading at 0.7136 off its session low of 0.7132 after having come off its session high of 0.7214 reached earlier in the day. The kiwi dollar tanked 1.04% against the dollar with the pair trading at 0.6683 off its session low of 0.6676 after having come off its session high of 0.6757 reached earlier in the day. The loonie declined 0.15% against the greenback with the pair trading at 1.3974 off its session high of 1.4018 after having come off its session low of 1.3897 reached earlier in the day with the pair trading near its 11 year peak. Data released out of Canada revealed that the raw materials price index dropped by 4.0% in November compounding forecasts for a decline of 3.0% following an increase of 0.4% in October.
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