The U.S. dollar continued its momentum from yesterday, gaining against the majority of its counterparts and touching a fresh 11-month high against the Euro. The Dollar Index rose yesterday after the Federal Reserve said the U.S. economy is maintaining its expansion and refrained from taking new action to lower borrowing costs. The FOMC said the economy “has expanded moderately,” compared with the November 2nd assessment that growth “strengthened somewhat.” The central bank also said “strains in global financial markets continue to pose a significant downside risk to the economic outlook.” The U.S. dollar has appreciated 5.0% in the past three months, according to Bloomberg Correlation-Weighted Indexes. The Japanese yen rose against the majority of its counterparts but remained largely unchanged versus the U.S. dollar as both currencies benefited from falling risk appetite. Meanwhile, the economic docket showed that mortgage applications in the U.S. increased by 4.1%last week, the highest level in a month. The data has had little effect on the direction of the greenback in early trading.
The Euro continued to retreat versus the U.S. dollar overnight as European stocks fell, Italian borrowing costs increased and Spanish banks’ borrowing from the central bank climbed by the most in a year. Italy sold 3 billion euros of five-year bonds as bond yields rose to their highest level since 1997. Indeed, yields on the five-year bonds rose to 6.47%, up from 6.29% from an auction in November. At the same time, Spanish lenders borrowed 98 billion euros from the European Central Bank last month, the most since September 2010. The increase signals that banks are struggling to access other sources of financing. The euro came under pressure yesterday after German Chancellor Angela Merkel rejected increasing the upper limit of funding for Europe’s permanent bailout mechanism. Merkel told coalition lawmakers the 500 billion euro cap on Europe’s planned permanent fund will stay in place.
The British pound held a tight range against the U.S. dollar, but continued to gain against the Euro after a report showed jobless claims rose at a slower pace than predicted in November. Jobless claims rose 3,000 in November and a revised 2,500 in October, the Office for National Statistics said today. Economists predicted 13,700. Unemployment rose to a 17-year high of 2.64 million in the 3rd Quarter. The pound has risen against the Euro as investors look for European exposure while staying out of the common currency.
