Dollar Rises Against European and Japanese Currencies

In the currency markets last week, the dollar significantly strengthened as the U.S. avoided the ‘fiscal cliff’ and all recent macroeconomic data indicate a strengthening U.S. economy.

The euro exchange rate against the U.S. dollar fell last week by 1.1 percent, to 1.3065 dollars, and on Friday at one point, for the first time in three weeks, it dipped below the level of 1.30 dollars.

The price of the dollar against the Japanese currency, on the other hand, jumped by 2.5 percent, to 88.15 yen, and on Friday at one point reached 88.40 yen, the highest level since July 2010. The euro also strengthened against the Japanese currency, by 1.4 percent, bringing its exchange rate to 115.20 yen.

The U.S. Congress passed a law on Tuesday that prevented an automatic reduction in budget expenditures and a tax increase totaling 600 billion dollars, which could have led the U.S. economy into recession.

The adoption of the law temporarily relieved the markets of significant uncertainty, but only briefly, as new potentially harmful political confrontations regarding budget cuts and the debt ceiling could follow in the next two months.

Market concerns over the unresolved issue of the U.S. budget deficit were reflected in a warning from Moody’s that the U.S. must make greater efforts to maintain its Aaa rating from the current negative outlook.

Investors often consider the U.S. currency a safe haven for capital and buy it in uncertain times, even if the source of that uncertainty is precisely in the U.S. This is why the dollar strengthened last week.

The employment report showed that U.S. employers added 155,000 new jobs in the last month of the previous year, indicating a stable recovery in the labor market. The unemployment rate remained unchanged at 7.8 percent.

– The most important thing is that the latest unemployment rate data over the past four months has been more or less consistent, so despite a solid increase in employment, the unemployment rate has not decreased – emphasizes Alan Ruskin from Deutsche Bank.

It could be said that this data will allow for a delay in the conclusion of the quantitative easing program of U.S. monetary policy, but also that it is solid when it comes to encouraging a risk appetite, says Ruskin.

A recently released minutes from the last meeting of U.S. central bank leaders showed that some officials are considering the possibility of slowing down or even ending the program of purchasing government and mortgage-backed securities by the end of the year, which the Fed aimed to strengthen liquidity and stimulate economic growth.