Dollar strength weighs on euro

Frankfurt (Jan 2)  In 2013 the US dollar suffered its worst annual loss in five years, but at the start of the new year the euro is off versus the greenback. 

EUR/USD is trading at $1.3656, down 0.77%, as dollar strength takes over. Last year was a bad one for the US currency, and dealers have started off 2014 by closing out their short positions on the dollar.

There was little reaction in December when the Federal Reserve announced it would begin tapering its bond-buying scheme to reduce the US economy’s dependency on the stimulus package. The reduction in quantitative easing will take effect from this month. Between the effects of short-covering and tapering, we could see the euro lose further ground to the US dollar in January.

The eurozone revealed strong manufacturing purchasing managers index (PMI) figures this morning, but this wasn’t enough to impress traders. The focus remains firmly on US dollar strength.

The latest jobless claims report from the US showed that the number of people claiming unemployment benefit dropped by 2000 on the week. This figure missed estimates, but it is still proof that the nation’s job market is improving.