Dollar falls sharply across the board
After the Fed’s bold move on Thursday, the improvement in investor risk appetite has given fresh impetus to US dollar selling with the greenback reaching multi-month lows against a host of currencies. While the prospect of further policy easing by the Fed was widely expected, it was the open-ended nature of the plans to buy mortgage backed securities that was more aggressive than the market had considered.
EUR/USD is heading in one direction and hit highs above 1.3150 in another stellar day for the European Currency. The ECB Bond Buying Program and the ESM seemed to have put a lid on the crisis for now and the relief rally is continuing as US monetary policy puts pressure on the Dollar. Similarly, GBP/USD climbed to $1.6256 its highest level since April 2012 and is trading above the $1.62 level early this morning.
Mixed economic data releases on Friday did little to bolster the US dollar. Industrial production in the US fell by 1.2% in August, much worse than expected and the largest decline since March 2009. The contraction in output was broad based with manufacturing activity down 0.7% on the month as firms react to a slowdown in orders at home and abroad. This represents a significant downside risk to GDP growth if trading conditions do not stabilise in the coming months.
Meanwhile, US retail sales rose 0.8% in August although underlying sales growth cooled off sharply. On a brighter note, confidence among US consumers unexpectedly improved in September with the University of Michigan index climbing from 74.3 to 79.2.
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