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italy blog travelEuro at a 9 year low against the US Dollar

The U.S. dollar rocketed to a new nine-year high against a basket of its major rivals overnight as the long-USD trade, which was so profitable for investors in the second half of 2014, looks to be a solid bet again in 2015. The greenback’s broad-based strength remains a function of a divergent growth and policy outlook between the U.S. and other major industrialized economies. U.S. economic data continues to point toward an accelerating recovery that should see the Fed begin to raise lending rates before the middle of this year. In contrast, other major central banks are either expected to stimulate their respective economies further in the near-term or remain sidelined for the foreseeable future. As such, the dollar should continue to find support from its improving yield appeal relative to other major currencies.

The euro collapsed through key chart support to trade at a new nine-year low against the U.S. dollar amid mounting Greek political uncertainty and expectations for the ECB to ease monetary conditions through an all-out sovereign bond purchase plan in the very near future. Over the weekend, a newspaper quoted top German officials as saying a Greek exit from the euro zone would be “manageable”, which highlighted some of the risks ahead of a January 25 election in the Aegean nation. Data this morПing showed moderating price pressures in Germany ahead of a broader euro zone CPI report on Wednesday. Over the weekend, ECB President Draghi warned of mounting deflationary risks- yet another hint of likely policy action to come in very near-term.

The British pound was dragged to a new 17-month low against the broadly stronger USD overnight. Comments from U.K. Prime Minister David Cameron, saying he wants to bring forward a national referendum on U.K. membership in the EU, added to the pound’s heavy tone.

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A broadly stronger U.S. dollar, sliding commodity prices and global financial market volatility sent the troubled Aussie to a new five and a half-year low.

USD: The U.S. dollar shot to its highest level in nine years against a basket of its major counterparts overnight as the divergent policy and growth outlook for the U.S. versus other major economies remained in фокус for global investors. The dollar rallied in a historic way in the second half of 2014 as the winding down of the Fed’s money printing/bond purchasing operations and its gradual movement toward an eventual lending rate hike contrasted policy expectations in the euro zone and Japan. That theme remains very much in play in 2015 and should remain a key pillar of support for the dollar. Recent economic data have pointed to a steady acceleration in America’s recovery, which should keep the Fed on-track for an eventual rate hike at some point before the middle of this year. This week, investors will фокус on the minutes from the Fed’s mid-December FOMC meeting as well as the all-important payrolls report for December. Another strong jobs number following November’s blowout report would likely add to the dollar’s very positive tone.

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