Dollar gains, as analysts look to new year

December 26, 2013

Los Angeles (Dec 26)   The dollar drifted higher Thursday, extending its upward motion on expectations of a further reduction in U.S. monetary stimulus, though overall forex action remained limited with many markets still on holiday.

The ICE dollar index, a measure of the U.S. unit against six other currencies, was quoted at 80.588, up from 80.507 late Tuesday, ahead of the Christmas holiday. The WSJ Dollar Index  firmed to 73.97, up from 73.82.

The ICE index has added about half a point since Dec. 18, when the U.S. Federal Reserve said it would slow the rate of its stimulative bond purchases, starting in January. IronFX chief forex strategist Marshall Gittler predicted more gains for the greenback in the new year.

“My view is that the dollar is still in an uptrend and is likely to rally further in 2014,” he wrote Tuesday, saying that among the developed economies, only the Fed and the Reserve Bank of New Zealand appear likely to tighten significantly.

“Every other central bank is expected to keep policy steady, at least for the next year and most for 18 months or more,” he wrote.

Meanwhile, the euro   was little changed from its pre-holiday levels, buying $1.3674, compared to $1.3677 late Tuesday. 

The euro has risen roughly 4 cents against the dollar this year, but BK Asset Management managing director Kathy Lien sees downside for the currency in the year ahead, particularly if the European Central Bank loosens policy further.

“A current-account surplus is expected to lend support to euro-dollar in the coming year, but with euro-zone growth expected to underwhelm and U.S. rates moving higher, we are looking for a move down to $1.33 in the currency pair, and possibly even $1.30 if the ECB eases,” she wrote in a note to clients.

Among other majors, the British pound  was little changed at $1.6373, while the Australian dollar /quotes/zigman/4867876/realtime/sampled AUDUSD -0.40%  fell to 88.86 U.S. cents from 89.26 U.S. cents.

The Japanese yen also weakened, with the dollar rising to ¥104.71 from ¥104.27, with Bank of Japan Gov. Haruhiko Kuroda saying Thursday that the nation’s economy hadn’t yet completely wiped out deflation, according to Dow Jones Newswires

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