Forex Market Review – Euro under pressure after dollar rises on U.S. data

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The euro remains under pressure against the dollar today after a big 1 percent drop on Wednesday following U.S. Federal Reserve Bank Chairman Ben Bernanke’s semi-annual monetary-policy report. Investors rushed to reposition their U.S. dollar holdings after Bernanke refrained from mentioning further stimulus measures which would have weakened the dollar. The absence of a third round of quantitative easing encouraged investors to buy more dollars, which is a perceived safe haven currency.

Bernanke disappointed markets by giving a more dovish tone regarding the outlook for the U.S. economy, saying it remained downbeat, despite recent signs of improvement and stronger economic data.

EURUSD struggled to remain above 1.3304 most of the European trading session as economic data for the euro zone disappointed. Manufacturing PMI came in as expected in February but still in the contraction phase at 49.0. Any number below 50 indicates contraction. Also, the euro zone unemployment rate rose more than expected and higher than the previous month, to 10.7 percent versus a 10.4 percent forecast.

Towards the end of the European session, just as New York was opening, the euro slid further against the dollar after U.S. jobs data. The number of Americans filing first-time claims for unemployment insurance payments fell to a level matching a four-year low, more evidence the labor market is healing. EURUSD dropped to 1.3281.

The ICE dollar index which measures the greenback against a basket of six currencies, to 78.818, from 78.799 in late North American trading Wednesday.

USDJPY was flat most of the session, hovering above 80.90, then surged up to 81.24 after the U.S. data. Yen remains under pressure after Bank of Japan easing measures last month.

The Australian dollar continued to rise against the U.S. dollar, buoyed by robust Chinese PMI data. China is Australia’s major export destination so is sensitive to Chinese data. AUDUSD hit a session high of 1.0779, rising steadily from Wednesday’s tumble to 1.0714.

Sterling remained firm against the dollar after BOE Governor Mervyn King this week played down the likelihood of another round of quantitative easing. GBPUSD hit a session high of 1.5960, not far from yesterday’s three month high.