The greenback has steadied its decline as it pared back its losses last weekend, amid weak economic signals from Eurozone and China. This was after the rout on last Wednesday that was ignited by Bernanke’s comments indicating that the Fed plans to continue with its accommodative monetary policy for now. The Dollar further supported by positive US PPI data was poised for a clear rebound.

The Dollar strengthened last Friday as the US Dollar index, that tracks greenbacks movement against its major currency partners, posted slight gains. After taking a heavy beating last week the US Dollar index advanced to trade at 83.11 after hitting a day’s high of 83.18 last Friday. Against the Pound sterling, the US Dollar climbed up from its previous low of $1.5221 that it had reached on Thursday to settle at $1.5115 on Friday.

Meanwhile, other currencies like the Japanese Yen and the Euro too dropped marginally against the Dollar’s rebound. On Friday last week, the Dollar gained by 0.3%, as the USD/JPY pair was trading lower at 99.152 Yen, after its previous high of 99.65 Yen. Whereas, on the same day, the Euro slipped to $1.3052 with a session low of $1.3035 after it had traded at record highs of $1.2986 in the previous few days.

Again on Monday the Dollar further advanced by 0.1% against the Yen to trade at 99.28 yen as of 6:37 a.m. in London. Against the Euro the greenback further increased by 0.2% to trade at $1.3070.

Combination of various economic factors were behind the halt in the US Dollar’s decline and it further rebounded last weekend after it had recorded the biggest weekly decline. The Euro Zone further saw itself mired in crisis as the Political strife in Portugal was threatening its bailout program.

Portugal, a heavily indebted European country, further plunged into deeper crisis, as its President Anibal Cavaco Silva rejected a ruling coalition reshuffle and called for an early election next year. This prompted the desperate Portugal government to request international creditors to postpone their assessment of the country's accounts from July 15 to the end of August. This consequently spiked the borrowing costs for the other European countries.

Furthermore, the leading credit rating agency Fitch cut down its rating for France amid rising economic tensions in the Eurozone that cast more uncertainties over the economic recovery. In the backdrop of these events, the European Central Bank’s Vice President, Vitor Constancio, commented on Friday that with the possibility of economic slowdown persisting in the Eurozone, there is a need to maintain a more accommodative monetary policy in this region.

Moreover, the US Producer Price Index data released on Friday morning displayed a 0.8% rise, exceeding the expectations of a 0.5% month-on-month rise. This according to the Bloomberg signals at a possible increase in the inflation for the US economy, indicating at broader economic growth in the World’s largest economy.

Meanwhile, in China, the Asian Powerhouse, its finance minister hit a negative note as he pared down the Chinese GDP growth expectations to a mere 7% rise, against the expected 7.5% rise for this fiscal year. All of these factors broadly underpinned the recovery in Dollar market.

However, according to the Department of Labor which compiles the data for the PPI index, the rise in the index was mainly due to the rise in Gasoline prices. This might be attributed to the seasonal rise in demand for fuel due to the summer driving season in US. But, the Eurozone still being muddled in more political and economic crisis, one can only expect the Dollar to continue its rebound trend, with may be a few brief pauses.

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