The Greenback soared to post huge gains as it rose to its strongest position in three years, supported by strong US economic data. The Strong US economic data had apparently strengthened speculations about an early scale back of monetary stimulus by the Fed, providing the necessary thrust to the dollar. 

The US Dollar index had surged by 1.5% last week. The greenback consequently rallied against most of its major currency counterparts. The Intercontinental Exchange Inc. (ICE), that tracks the dollar’s movement against the currencies of its six major trading partners, reported that the greenback has increased by 4.8% since June 18 of this year.

The US Dollar advanced by 1.4% against Euro, its close competitor, to trade at $1.2829 per euro last Friday. This is dollar’s strongest climb since May 17 of this year. While against the Yen, Dollar increased by 2.1% to trade at 101.20 Yen, as it continued its rally against the Yen for a third week. This has helped Dollar strengthen by 8.1% this year, as it snatches the best performer spot among the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Indexes.

Meanwhile, the sterling has slipped by 1.2% to trade at $1.4890 against the Dollar. This decline has pushed the Pound to its lowest level against Dollar since March 12 this year. This decline was further precipitated by the European Central Bank’s (ECB) and the Bank of England’s (BOE) announcements that they plan to keeps the interest rates at its lowest to maintain the current level of liquidity.

On the other hand, US neighbor Canada’s currency declined by 0.6% to trade at C$1.0582 per U.S. dollar in Toronto. Last week, it had reached a C$1.0609 per U.S. Dollar, its lowest level since October4, 2011.This drop in the Canadian currency can be attributed to the slowdown in Job gains, as Canada’s monthly average moved up only by 14,000, which is far less than the 27,000 recorded in the second half of last year.

Meanwhile, the US economic data, especially the Jobs data struck a positive note. The U.S. non-farm payrolls report for June revealed that around 195,000 new jobs had been added last month, surpassing the expectations of 165,000. This trend was also reflected in the last week’s unemployment claims data that fell predictably and the reports that gauge the US manufacturing also exceeded expectations.

This surge in the US Dollar was bound to take its toll on the precious metals like bullion, favorites for hedging against inflation and economic downturns. The rise in US Dollar would drain the liquidity in the commodities market and cause a drag on their prices. Predictably, the gold prices fell by 2% on Friday last week, due to fresh fears that the Federal Reserve would soon begin tapering its bond-purchase policy. Gold prices for immediate delivery fell by 0.4 percent to trade at $1,218.19 an ounce on Monday at 0241 GMT.

Thus, the surge in US Dollar has again affected most of its major trading currencies as they fell against the strengthening US Dollar. This has also had a bearish effect on the bullion and commodities market. This rise in greenback was supported by last week’s jobs data that exceeded expectations. However, the US unemployment rate remains steadily at 7.6%, casting speculations on the timing of Fed’s QE tapering and on Dollar’s current uptrend.

Note: This blog is just an author’s opinion and cannot be deemed responsible for any losses incurred.