Dollar Climbed To 9-Month High Against Euro Due To ECB Easing Concerns

January 5, 2015

Washington (Jan 5)  The dollar surged to its highest level since 2006 against the Euro on Monday and also gained ground against the British pound. The Euro declined due to the belief that the  European Central Bank  will announce further quantitative easing at its next meeting, which is scheduled for  January 22  .

 European Central Bank  President  Mario Draghi  said that the risk of deflation in the euro area has risen over the months and the central bank is preparing to react to such a threat, if necessary.

In an interview with German financial daily  Handelsblatt  , published on Friday, Draghi said, "The risk that we do not fulfill our mandate of price stability is higher than six months ago."

Investor concerns over a potential Greek exit of the Eurozone also weighed on sentiment at the start of the new trading week. German Chancellor  Angela Merkel  reportedly said the eurozone could cope with a potential Greek exit if it proved necessary.

Economic data from the Eurozone was mixed Monday, with an unexpected increase in Eurozone investor confidence, but weaker than expected growth in German consumer prices.

The investor confidence index climbed to 0.9 from -2.5 in December. Economists had forecast an improvement to -1.

 Germany's  inflation slowed more-than-expected in December, preliminary figures from Destatis showed Monday. The harmonized index of consumer prices edged up 0.1% annually following 0.5% gain in the previous month. Economists had expected a 0.2% increase.

The dollar surged to a 9-year high of  USD1.1887  against the Euro on Monday, but has since eased back to around USD1.1940.

The greenback also climbed to a 17-month high of  USD1.5203  against the pound sterling, but has since retreated to around  USD1.5260  .

The strength of recovery in the  UK  construction sector moderated to the lowest since  July 2013  , survey data from Markit Economics showed Monday.  The Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index  for the construction sector fell more-than-expected to 57.6 in December from 59.4 in November. The score was forecast to fall to 59 in December.

The buck has fallen to around  Y119.560  against the Japanese Yen on Monday, from an early high of  Y120.646  .

 Japan's  manufacturing sector continued to expand at a steady pace in December, the latest survey from Markit Economics showed on Monday, with a PMI score of 52.0. That was unchanged from the November reading and remained above the boom-or-bust level of 50 that separates expansion from contraction.

Investors will be watching for a number of important US economic reports this week. The FOMC will release the minutes from its most recent meeting Wednesday afternoon. Readings on US private sector employment and weekly jobless claims are also due to be released ahead of the all important US jobs report for December, which is due to be released on Friday.


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