The dollar firmed against the euro on Thursday a day after Federal Reserve Chair Janet Yellen hinted at a timetable as to when rate hikes might take place, while better-than-expected weekly jobless data also supported the greenback. Fed asset purchases aim to stimulate the economy by suppressing interest rates, weakening the dollar as long as they remain in effect. Elsewhere, data on Thursday showed that fewer individuals sought first-time jobless benefits in U.S. last week than markets were expecting, which added to the dollar's gains. The Department of Labor reported that the number of people filing for initial jobless benefits in the week ending March 15 rose by 5,000 to 320,000 from the previous week’s total of 315,000. Analysts had expected jobless claims to rise by 10,000 last week. A separate report showed that manufacturing activity in the Philadelphia-region expanded at a faster rate than expected in March..
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The pound softened against the dollar on Thursday as investors favored the dollar in wake of Federal Reserve Chair Janet Yellen's Wednesday press conference in which she hinted at a possible timetable for interest rate hikes. The dollar shot up for a second day after Yellen suggested at a Wednesday press conference that interest rates could rise six months after the Fed's bond-buying program ends. The Fed is currently buying $55 billion in Treasury and mortgage debt a month, and expectations for the monetary authority to taper that figure gradually and close the program by fall followed by rate hikes in 2015 strengthened the dollar against the pound and most other currencies. Fed asset purchases aim to stimulate the economy by suppressing interest rates, weakening the dollar as long as they remain in effect. Elsewhere, data on Thursday showed that fewer individuals sought first-time jobless benefits in U.S. last week than markets were expecting, which added to the dollar's gains.
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Yen is one of the most traded currencies in the world, especially due to its low interest rate since the Yen is used in carry trades. Recently the Bank of Japan has expanded their purchase of Yen, hoping to overturn the deflation tide to inflation. Doubling this money supply is devaluing the Yen, boosting exports; but, increasing prices of imports at the same time, especially for commodities. The Federal Reserve announced the results of a stress test today after the close of US markets, saying that 29 of the 30 banking institutions met or topped its capital targets. The Fed said that the largest banking institutions are better positioned for a financial crisis than 5 years ago and have improved their capital positions. The improved position of the major banks paints a better picture of the economy and financial institutions since the crisis in 2008. A majority of Fed members expect the FOMC to raise the interest rate and end quantitative easing by the end of 2015, according to yesterday’s statement, and today’s stress test results may further allow the Fed to tighten policy without worrying about the impact on lending institutions.
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USD/CAD
The U.S. dollar rose to four-and-a-half year highs against the Canadian dollar on Thursday, buoyed up by growing expectations the Federal Reserve could hike interest rates earlier than previously thought. The Fed said it would reduce its monthly bond purchases by an additional $10 billion to $55 billion at the conclusion of its two-day policy setting meeting on Wednesday. The dollar rallied after Fed Chair Janet Yellen indicated that the bank could begin to raise interest rates about six months after the bond-buying program winds up, which is expected to happen this fall. The comments prompted investors to bring forward expectations for a rate hike to as soon as April of next year. However, the Fed statement also emphasized that economic conditions could mean that rates would remain on hold at record lows for some time, even after inflation and employment return to their longer-run trends.
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