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The US dollar hit its highest mark in more than three weeks while at the same time several foreign currencies fell to include European stocks’ decline with S&P 500 futures. The value of the dollar increased after markets were surprised by the Federal Reserve’s more severe policy tone and signaling confidence in the recovery of the US economy.
In a statement released by the Federal Reserve, the improving US labor market was highlighted. The Fed dismissed recent financial market volatility, as well as growth challenges in Europe and a relatively large weak outlook on inflation.
Although the central bank claimed that interest rates would stay low for some time, the statement released by the Feds pushed up US yields but also increased appeal for the US dollar.
Even though the statement was not what markets expected, Wall Street shares experienced very little change. Kengo Suzuki, chief Forex strategist at Mizuho Securities believes the tone of the Feds confident in the US economy was accepted by markets.
After spiking to a three-week high of 2.362% in yesterday’s trading, yield on benchmark 10-year Treasury notes stayed at 2.310% in Asian trade. For the dollar index, used to measure US currency against six of the biggest rivals, climbed to 86.293, the highest level since October 6 following the Fed’s announcement.
Regarding the Euro, it hit a three and a half week low of $1.2586, down 0.2% when traded last at $1.2605. The US dollar surpassed 109 yen, the first time in three and a half weeks, last trading up 0.2% at 109.10 yen. According to Suzuki, as soon as next week, the US dollar could reach 110.09, the six-year high marked at the beginning of October.
Following comments made by Japan’s Prime Minister, Shinzo Abe the yen had limited reaction. In his statement, a weak yen was good for exporters. However, Abe added that any signs of a negative impact from a weak currency on local areas and small firms will be carefully monitored.
In the meantime, the New Zealand dollar dropped sharply after a widely expected decision not to change interest rates was announced by the country’s central bank. Imre Speizer, market strategist at Westpac Banking Corporation agreed that the US dollar is back on an uptrend.