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THE TAKEAWAY: The U.S. Dollar strengthened this week despite improving data from Europe and the U.K., as stock markets fell and investors speculated that wider risk aversion trends were returning.
The U.S. Dollar had a strong start to the week as China reported that its GDP grew 7.7 per cent which disappointed analysts who were expecting an 8 per cent figure for growth. The Australian Dollar, which is closely tied with growth in China, fell against the Greenback as investors lost some confidence in the commodity based currency. The rally continued into the week however it was not without volatility as sharp losses in the Dollar were experienced against the Euro as the E.U. declared a budget surplus of more than 1 billion Euros. An in-line print of the U.K. Consumer Price Index saw the Pound rally against its counterparts, and further losses were experienced in the American currency as the Federal Reserve’s Governor Elizabeth Duke spoke to bankers in Washington. In her speech, Duke said that the U.S. economy was recovering, and that low rates would not last forever. A sell-off in the Dollar ensued as Duke’s remarks that the housing market was recovering saw investors dump their safe asset holdings for riskier investments.
Downward pressure on the Greenback subsided and the currency embarked on a rally that would see the Dollar Index go from below 10,450 to above 10,525. Wednesday saw the release of the Bank of England’s Minutes from their April meeting which again had Mervyn King losing a vote to increase the Qualitative Easing program. The minutes stated that further asset purchases could facilitate a smoother path to economic equilibrium, and the Pound fell against the U.S. Dollar on news that it had been voted down. The Dollar continued to rally as the S&P500 Index experienced losses in New York trading. Finally, the Federal Reserve’s Beige Book was released and saw the economy grow at a moderate pace through April, and saw a more upbeat sentiment forcing investors in the safe-haven currency to consolidate their positions and perhaps take some money off the table. Going into the weekend speculators are still unsure whether wider risk aversion is taking over or not.