The U.S. dollar weakened on Monday against the Euro, despite making some gains after the news of Bin-Laden’s death. EURUSD climbed to a 17-month high in the US trading session to hit 1.4901.
The expectations that the Federal Reserve will not be raising interest rates soon and will be keeping monetary policy loose has made investors shun the lower yielding greenback for higher rates abroad. The fact that the European Central Bank and the Bank of England have already raised rates has undermined support for the US Dollar and boosting the Euro and the Pound.
Additionally, Australia and Canada are expected to tighten lending conditions in the months ahead.
So far this year the Euro has gained 11 percent against the US Dollar and the Sterling has risen 7 percent.
. After the release of some strong manufacturing data in Europe this morning, the Single Currency was given a boost and climbed throughout the day to a 17-month high above USD1.49. The positive data fuelled expectations that the Eurozone could see another rate rise soon.
According to Brad Gareiss, technical analyst at GFT Forex in New York, many believe it is only a matter of time until EURUSD breaks USD1.50, but the euro’s rally will run out of steam at USD1.5151, a level in which multiple levels of resistance converge.
Despite U.S. manufacturing showing the US economy expanded at a faster pace than expected compared to March this did little to boost the Dollar.
“The reaction should reaffirm how difficult it is for the U.S. dollar to get a sustained lift from strong growth and price numbers until such data starts to significantly pull forward U.S. rate expectations,” said Alan Ruskin, global head of G10 currency strategy at Deutsche Bank in New York.
“The dollar’s deteriorating yield appeal relative to its major counterparts is likely to keep it vulnerable as long as the Fed remains comfortable with its very low borrowing costs,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
Meanwhile, volatility was generally higher and should remain elevated this week given an ECB monthly policy meeting on Thursday and U.S. jobs data from the Labour department on Friday. However, with the Fed strongly set on maintaining rates low for an extended period, it would take very strong jobs data for the Fed to change this assessment materially.