Daily Afternoon Report 28.12.2016
The U.S. dollar continued its march higher against the other major currencies in light pre-New Year holiday trade on Wednesday, as expectations for strong economic growth under Donald Trump’s Administration and more rate hikes by Federal Reserve next year continued to lend support.
Trading volumes are expected to remain light this week due to the holiday period as many investors already closed books before the end of the year, reducing liquidity in the market, which could result in exaggerated market moves.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up around 0.5% at 103.50 by 10:10AM ET (15:10GMT), not far from last week’s 14-year peak of 103.62.
Against the yen, the dollar was up 0.2% at 117.64, crawling back towards a 10-1/2 month high of 118.65 set last week.
Meanwhile, the euro dropped 0.65% to against the greenback to 1.0387, not far from last week’s 13-year low of 1.0352.
Elsewhere, the British pound slumped 0.5% to a fresh two-month low of 1.2206 against the dollar, amid renewed uncertainty over the process by which Britain will leave the European Union.
Since the U.S. election in early November, the dollar has rallied by almost 6% thanks to bets of higher U.S. growth and a faster pace of interest rate increases under incoming president Donald Trump.
The Fed hiked interest rates for the first time in a year earlier this month and projected three more increases in 2017. In contrast, central banks in Europe and Japan remain committed to very loose monetary policies.
Higher rates boost the dollar by making the currency more attractive to yield-seeking investors.