The dollar has seen bearish trends most of this year. However, since September, the dollar has been slowly strengthening, especially against its European rivals.
The index measuring the dollar’s performance against 6 rivals (Euro, Japanese Yen, Pound Sterling, Canadian Dollar, Swedish Krona and Swiss Franc), the ICE Dollar Index (DXY), went up another 0.5% to reach 93.99. The much broader index that measures the performance of the dollar versus 16 other currencies, the WSJ US Dollar Index (BUXX) also showed a 0.8% gain to close the day’s trading at 86.98.
The dollar strengthened against the Euro, which was buy from $1.1761 to $1.1734. The Pound sterling also showed a steady drop against the dollar as it fell to its lowest level since early September to reach $1.3142. The dollar also went stronger against the Swiss Franc buying at 0.9771 vis-à-vis 0.9749 on Wednesday. The dollar also regained its footing with the Japanese Yen, against which it had slipped earlier in the week. The dollar went up again, buying at ¥112.81 versus its Wednesday drop at ¥112.75.
Dollar Strengthening Against European Rivals
Across the waters, the Australian dollar also suffered against the USD, dropping to the lowest it’s been against the dollar since July this year. The AUD was down to from $0.7864 to buy at $0.7790.
The Euro dropped against the dollar after traders put brakes while assimilating the news from the latest meeting report from the European Central Bank about how to scale down their Quantitative Easing program for bond purchases. The Pound Sterling is struggling since the Prime Minister’s speech in Spain with regard to the country’s plans about Brexit. The speech was not received well as there were very few details given and was couched in generalities. Matters were further worsened once the UK entered a gridlock with Brussels over the Brexit negotiations.
One of the latest reasons for the dollar going up is the good news on data readings this week. Jobless claims dropped by 12,000 to 260,000 in September, meaning fewer Americans applied for unemployment benefits dropped. Analysts had predicted a higher jobless claim number of 265,000. The latest jobs data shows that the US has a record number available in the market now. The challenge, especially in the manufacturing industry, is the dearth of skilled labor. Layoffs are extremely low as companies don’t want to lose the skilled laborers they have due to the shortage of such applicants in the market.
Additionally, the country’s trade deficit also dropped from $43.6 billion to $42.4 billion – a 2.7% drop (the expected change was $46.2 billion). Imports were down by 0.1% ($237.7 billion) but exports became stronger and rose 0.4% to $195.3 billion.
Another big reason is the House of Representatives passing a resolution with regard to the latest promised tax reforms. This is a big step as the tax reforms are leaning heavily towards tax cuts especially for businesses. This would mean that there would be higher earnings with lower taxes to be paid.
The talk of the market is that the Federal Bank is more than likely to raise lending rates in its meeting in December as markets continue to do well. This has helped bolster the dollar further. According to analysts, the dollar should now see a bull run as the traditionally strong last quarter of the year has already taken off with a running start.
All data points to a strong and vibrant economy and, barring any unforeseen disasters, this trend should continue well into 2018. This means the dollar should continue to strengthen against its rivals pretty much everywhere in the world.