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Dollar Recovers Luster after Fed Minutes

Posted by Joseph Trevisani on Oct 10, 2014 1:11:00 PM

The dollar rose against the euro for a second day, erasing the decline from Wednesday's release of the minutes of the Federal Reserve’s September meeting. Those discussions between Fed board members and staff showed that showed policy makers are concerned the U.S. recovery may be at risk from a worldwide economic slowdown.

The U.S. currency traded as high as 1.2604 versus the euro almost exactly where it was before the release of the FOMC minutes. After the release it rose to 1.2749 on Wednesday and reached 1.2791 yesterday.

Growth in the 18 member European Monetary Union was flat in the second quarter and GDP in its largest member Germany contracted 0.2 percent, raising the uncomfortable possibility that the EMU will face its third recession in four years and Germany it’s second.

European Central Bank President Mario Draghi has said that there were indications the region’s economy is losing momentum and that deflation is a threat to the continent's recovery.

The central bank has cut is main-refinance rate to 0.05 percent and started an asset purchase program in an effort to revive the area's economy and provide enough liquidity to forestall deflation.  

Consumer prices in the ENU rose just 0.3 percent on the year to September, the smallest annual gain on record, except for a brief five month period in the second half of 2009 at the height of the market reaction to the financial crisis and recession when prices actually fell.

The U.S. Dollar Index rose 0.45 percent today to 85.919 as of 4:00 pm in New York. It is down 1 percent over the past five days from its 86.746 high four year high, ending the longest positive run since 1971, when the Bretton Woods agreement that had tied the U.S. currency to gold collapsed.

The dollar was little changed in today's action at 107.70 yen, down 1.9 percent on the week, the first five day decline since the period ended August 8th. The euro/yen cross was off 1 percent as well on the week, closing at 135.87.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

eur daily oct 10

dxy oct 10

 

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