The greenback rose to its highest level in 14 years last night battering emerging-market currencies and pushing the euro closer to parity after the U.S. Federal Reserve signaled that it expects to raise interest rates quicker than previously anticipated.
The euro tumbled to its lowest level against the U.S. dollar since 2003, dropping to $1.0417 on New York close from $1.0537 previously. At this rate, the euro could reach parity in the first half of 2017 according to some analysts.
In Latin America, the Brazilian Real fell 0.15% amid decreased consumer confidence as prosecutors brought further charges against previous president Lula for corruption charges. The Mexican Central Bank, Banxico, hiked by 50 basis points more than the 25 expected intending to get ahead of the Fed and reduce inflation.
The Australian Dollar broke from its 0.75 magnet yesterday to trade lower at 0.7360 after a slight pullback in early Europe as AUD was buoyed by base metals. AUD/NZD finished at its highest point of the week closing 0.6% higher at 1.0455 whilst the NZD faced the full brunt of USD strength. AUD/JPY pulled back as it attacked the major fib target at 87.65 with the reversal now attacking support at 86.30 amid a cluster of previous highs from January. Positive Employment data has done little to settle the debate surrounding Australia’s AAA rating which could be determined before Xmas.
The greenback was at ¥118.30 against the yen on Thursday afternoon in New York, up from ¥117.04 late Wednesday and roughly ¥115.00 before the Fed announcement.
Expectation is that the yen could fall further with some currency strategists forecasting an exchange rate of 125 to the dollar in 12 months, close to the 13-year high of 125.9 reached in mid-2015.
The yuan tumbled to its lowest level against the greenback in more than eight years, extending a decline that brings its loss to about 4% since the beginning of October. Overall the the Chinese currency is now down 6.7% against the dollar this year.
In equities, The Dow rose 60 points, or 0.3%, to 19852 on Thursday after posting its largest daily decline since October following the Fed announcement. The index had been up about 159 points earlier in the day but pared gains in the afternoon.
Both the S&P 500 and the Nasdaq Composite gained 0.4% on their respective index. The S&P rising 8.75 to close at 2,262.03 and the Nasdaq up 20.18 to close at 5,456.84.
Gold also dropped to a 10-month low last night extending a steep decline as markets adjusted to the prospect of more interest-rate increases next year in the wake of the U.S. Federal Reserve’s meeting and the strengthening U.S. dollar. Gold for December delivery fell 2.9% to $1,127.80 an ounce.
Crude oil prices fell Thursday for the second day in a row as the greenback surged, raising concerns about demand for oil outside the U.S. WTI futures for January delivery fell 0.27% or 14 cents to $50.90 a barrel on the New York Mercantile Exchange while the February contract for the global benchmark Brent, gained 0.22% or 12 cents to $54.02 a barrel on London’s ICE Futures Exchange.
In other news, the BoE unanimously left rates on hold at 0.25% signalling that the cash rate will remain neutral until mid-2017 whilst maintaining current quantitative easing levels. Most notably, in the monetary policy summary, Carney reiterated his previous rhetoric that the bank will tolerate inflation generated by the trade-off between inflation and growth. After three weeks of gains GBP/USD gave back 3.5 cents within 24 hours. Stops below 1.25 were triggered prior to the Bank of England’s announcement reaching a low of 1.2446 after the BoE relaxed its CPI position. GBP fell 1.15% on opening this morning to continue two days of USD strength as an overriding bearish attitude sees technicals point lower.
