The dollar strengthened against the euro and yen on Tuesday in international currency markets, influenced by positive macroeconomic data from the U.S., which supports expectations for a possible sooner reduction in stimulus monetary measures.
In such circumstances, the euro weakened by 0.5 percent against the dollar, trading at 1.2998 dollars. The dollar also saw a notable gain against the yen, strengthening by 0.74 percent, trading at 100.38 yen, marking its highest level since June 5.
The exchange rate of the U.S. currency reached its highest level in four weeks against the yen and its highest in five weeks against a basket of leading world currencies due to increased optimism that the latest series of macroeconomic data from the U.S. will enhance the prospects that the U.S. central bank, the Fed, will begin to reduce economic stimulus programs sooner than expected. Good news from the industrial sector in the U.S. provided a boost to the dollar yesterday.
Strengthened expectations for a reduction in the Fed’s bond-buying program have raised yields on U.S. bonds and increased the attractiveness of dollar-denominated assets, particularly as other leading central banks around the world remain more inclined towards further easing of monetary policy.
Investors will focus on the key employment report in the U.S. at the end of the week. It is expected to show 165,000 new jobs created in June and a decline in the unemployment rate.
“New solid data on new jobs would support the prospects for a reduction in the Fed’s program and help the dollar maintain its strengthening path against other major currencies,” explains Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
With developments on the other side of the Atlantic, investors will shift their focus on Thursday to the regular monthly meeting of the European Central Bank (ECB) in search of further guidance.
