Dollar Weakens Under Fed Pressure

Last week, pressure on the dollar intensified in the currency markets after the U.S. central bank announced a new quantitative easing program on Wednesday.

The dollar index, which shows the value of the U.S. dollar against six major world currencies, weakened by 0.86 percent last week, to 76.51 points. Meanwhile, the U.S. currency weakened by 0.65 percent against the euro, bringing the euro exchange rate to 1.4030 dollars. In contrast, the price of the dollar rose by 0.98 percent against the Japanese currency, to 81.24 yen.

The euro also strengthened against the Japanese currency by 1.73 percent, bringing its exchange rate to 114.05 yen. As expected, on Wednesday, Fed leaders announced a decision to purchase government bonds over the next eight months for 600 billion dollars, aiming to lower financing costs, stimulate lending, and accelerate economic growth. This implies an increased supply of dollars, which caused the U.S. currency’s exchange rate to fall.

As a result, on Thursday, the dollar index fell to just 75.63 points, the lowest level in 11 months. At the same time, the price of the euro against the U.S. dollar reached its highest level in 10 months – 1.4283 dollars.

“There is a risk that the dollar’s decline will continue towards the end of the year, but I doubt that the euro can rise significantly, given the problems that still plague the eurozone,” comments currency strategist Tom Levinson from ING.

While it weakens against the euro, the dollar’s exchange rate against the Japanese currency remains stable around the lowest levels in the last 15 years and does not fall below the 80 yen mark. In fact, on Friday, the U.S. currency sharply strengthened, pushing its price against the yen above the 81 yen level. At the same time, the euro exchange rate fell from over 1.41 to 1.4030 dollars.

This is thanks to data showing that in October, 151 thousand new jobs were created in the U.S., marking the first increase in employment since May and exceeding analysts’ estimates, who expected a modest increase of 60 thousand new jobs. However, analysts are not convinced that this data will be able to sustainably halt the trend of dollar weakening.

“I do not want to draw premature conclusions as I believe it all depends on how sustainable this increase in new jobs is,” says Fabian Eliasson, an analyst at Mizuho Corporate Bank.

Unlike the Fed, which opted for new economic stimulus measures, the European Central Bank (ECB) and the Bank of England on Thursday, as expected, kept key interest rates at record low levels of 1.0 and 0.5 percent, respectively. (H)