US Dollar Close to Seven Month High
The US dollar is now close to a seven month high against a basket of major currencies after released minutes of the FOMC meeting showed that Fed officials discussed exit strategies from stimulus programs. The euro fell against the dollar and is now near a nine month low hit earlier this week. Released Fed minutes revealed that many Fed policymakers want to begin selling securities as the US economy improves. The greenback was also lifted by data that showed U.S. housing starts rose to a six-month high in January and industrial production increased. Johan Javeus of SEB in Stockholm stated, “It hasn’t been a huge move but the Fed minutes have helped the dollar as they were perceived as hawkish. Whereas before there was a sense that the ECB would be ahead of the Fed in raising rates it now looks increasingly likely that the Fed will move before the ECB.”
Gold Prices Drop
Commodity linked currencies were pressured after the International Monetary Fund said it planned to sell gold on the open market. The IMF plans to sell 191.3 tons of gold to raise funds for lending. Spot gold prices fell dragging down the Aussie dollar. The Aussie fell 0.4% to $0.8957 and the Kiwi dollar fell 0.5% to $0.7000. Commodity prices were affected by a stronger dollar and the IMF announcement. Gold fell to $1,100 an ounce. Jonathan Cavenagh of Westpac stated, “The gold sale news is weighing on the Aussie especially against the U.S. dollar which is seeing a biddish tone.
Greek Crisis Threatens Euro Zone Assets
The pound fell 0.5% vs. the dollar to $1.5587 after data showed public sector borrowing at 4.339 billion pounds last month causing the first January deficit since 1993. Tom Levinson, currency strategist at ING stated, “Everyone is very focused on the euro zone fiscal situation at the moment, but the UK is in every bit as bad a shape.” Greek budget deficits and the lack of a coherent plan by EU officials have hammered the euro in currency markets. Last week EU ministers issued vague statements that left investors worried about the integrity of euro zone assets. German opposition to any kind of aid to Greece remains fierce in Germany but should Greek problems threaten the euro Germany may have no choice but to help Greece. This year Greece’s debt will reach 120% of GDP and must try to sell 53 billion euros in debt this year. The euro is likely to remain under immense pressure until the Greek crisis is resolved.
