US Dollar Index Reaches 3-Month High as Euro Falls after ECB Policy Minutes

The US dollar index climbed to a three-month high, amid increasing speculations of President Donald Trump unveiling new tax reforms and strong GDP data. Real gross domestic product rose at an annual pace of 3% in the third quarter, following growth of 3.1% in the second quarter. Economists, on average, were expecting GDP growth of 2.5% in the third quarter.


US consumer spending grew at a rate of 2.4% in the third quarter, marking a slowdown from the 3.3% growth recorded in the prior quarter. Non-residential investment increased 3.9% for the quarter, while housing investment dropped 6%.


The US dollar also responded positively to the lower-than-expected rise in initial jobless claims in the week ended October 21. Claims rose by 10,000 to 233,000 in the week, versus expectations of a 12,000 increase.


The ICE US Dollar Index, tracking the greenback’s performance compared to six major currencies, rose to its highest level since mid-July to trade at 95.01 on Friday.


The US dollar gained versus the euro, following the European Central Bank’s (ECB) rate announcement. The ECB further indicated plans to trim its monthly bond purchases from €60 billion to €30 billion starting January 2018. The Central Bank will also have the option of extending the purchases in September 2018, if necessary.


The ECB kept its benchmark interest rate at 0%, as widely expected. The euro slipped to $1.1604 on Friday, from $1.1653 late Thursday and versus $1.1813 on Wednesday.


The US dollar gained against the Japanese yen, following disappointing CPI data from the Asian nation. Japan’s core consumer prices rose 0.7% in September, weaker than expectations for an increase of 0.8%. The US dollar also advanced versus the Japanese currency after the US released strong data for factory orders on Wednesday. Moreover, new orders for US manufactured durable goods climbed 2.2% in September, beating expectations. USD/JPY rose to 114.23 on Friday.


Dollar traders are likely to focus on the US Federal Reserve President nominees this week. There are speculations of Janet Yellen not serving a second term, while Jerome Powell and John Taylor are expected to be the frontrunners for Fed leadership. President Trump is widely expected to reveal his decision this week, prior to leaving for his Asia trip on November 3.


The British pound slipped against the greenback on Friday last week, after gaining in the previous session. The pound responded positively to strong UK economic growth data. The Office for National Statistics reported a 0.4% increase in GDP for the three months to September, versus 0.3% growth in the prior quarter. The latest figure came in ahead of expectations, which were pegged at 0.3%. The UK economy grew 1.5% year-over-year. GBP/USD traded at 1.3090 on Friday.


The Swedish krona fell against the US dollar after Sweden’s Riksbank kept interest rates unchanged. The dollar climbed to 8.3757 krona following the announcement. The Norwegian krone slipped against the greenback following the Norges Bank’s decision to keep interest rates unchanged. The US dollar climbed to 8.1872 versus the Norwegian krone.


The Australian dollar also declined against the US dollar, dropping to 0.7642 on Friday. Despite some progress, the Australian economy has not been able to keep pace with the performance of other advanced economies.


The high-impact US economic calendar for this week includes key personal income and spending data, scheduled for release on Monday. The ADP National Employment Report will be released on Wednesday, when the Federal Reserve is also scheduled to announce its interest decision. US jobs data for September will be the key report for this week, scheduled for release on Friday.


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