US Dollar Index trades higher

Frankfurt (Jan 21)  Despite light trading due to the U.S. markets being closed in commemoration of Martin Luther King Jr., the U.S. Dollar continued to trade higher than most of the majors. The European market seemed to follow the Asian Equities market as they both started the week lower subsequent to the release of less than stellar economic growth figures out of China. The greenback rallied versus the Euro on speculation that the Federal Reserve could decide to scale back further on the asset purchases given the recent economic data issued in the past week. Some analysts anticipate that the U.S. will issue positive metrics in the coming months, as the economy remains on course to recovery. Meanwhile, Gold Prices climbed during thin trading as market investors continued to speculate on how soon the central bank could wind down the easing program. Futures for delivery in February traded at $1,254.60 a troy ounce on the Comex during the European trading hours. Gold values rose to a five-week high in London as investors anticipate that demand for the precious metal may remain high, though many economists believe that Chinese demand may dip following the Lunar New Year.

The Euro traded steady even as Germany announced a slight increase in PPI after sustaining two months of declines. However, economists indicated that this is a sign that inflation levels remain weak in the E.U. The President of the European Central Bank stated that monetary policies will continue to be accommodative, though the bank is ready to act should inflation indicators remain sluggish. The British Pound climbed to the highest in one week versus the Euro on news revealing that Home Prices in England and Wales rose, suggesting the Bank of England may opt for hawkish measures. The solid metrics boosted speculation that the U.K.’s economic recovery will continue throughout the year.

The Yen jumped versus the U.S. Dollar, though the pair fluctuated slightly during subdued trading. The greenback received a boost after Friday’s economic announcements offered high numbers in the construction sector but weak figures for consumer sentiment. In Japan, Industrial Production fell by 0.1 percent; however, the markets shrugged off the less than stellar figures. In the past week, Japan revealed that Core Machinery Orders surged 9.3 percent while the Tertiary Industry Index showed a 0.6 percent advance.

Lastly, in the South Pacific, New Zealand was recently hit by an earthquake, which caused the Kiwi to decline. The Australian currency recouped its value after dipping to a three-year low versus the greenback. The Aussie gained after China indicated that its economy expanded. The numbers denoted that economic growth has slowed down; however the data still exceeded forecasts for a 7.6 percent expansion.

EUR/USD- Euro Erases Some Losses

The Euro erased some of its losses against the U.S. Dollar though its gains were limited, as the European Central Bank is growing weary that the sluggish inflation figures could begin to weigh on the region’s growth outlook. But demand for the greenback remained high, especially after last week’s key reports showed an improvement for the U.S. economy despite a drop in Consumer Sentiment. On the data front, Germany revealed that PPI rose by 0.1 in December, which was short of the predicted 0.2 percent advance. According to some analysts, the likelihood of deflation was up, and the central bank remains ready to step in should the problem worsen.