Markets

Dollar hits 14-year high after strong US manufacturing data

US reports prompt expectation of Fed rate tightening and rosier economic outlook

Dollar continues to gain in strength after data showed solid growth in US manufacturing.

Tue Jan 3 2017 - 16:55

The US dollar rose to its highest level in 14 years against the euro and a basket of major currencies on Tuesday after data showed solid growth in US manufacturing. The dollar rose to its highest average level against other major currencies since December 2002, after data showed US factory activity accelerated to a two-year high last month and construction spending rose to its highest in 10½ years in November.

Orders

“Job growth appears to be picking up, orders are picking up quite strongly, prices are increasing quite strongly as well,” said Shaun Osborne, currency strategist at Scotia Capital in Toronto. “That suggests the [Federal Reserve] is going to have to remain active in this kind of environment. So this on the whole is a generally constructive set of data for the dollar here in a time of the year where typically the dollar does quite well.”

The growing consistency of strong US economic reports has led to expectations of increased tightening of US interest rates from the Fed and rosier outlooks on the overall health of the world’s largest economy, analysts said.

That has helped elevate the dollar to its strongest in nearly a decade and a half as investors gear up for expected cuts in regulations and tax rates, as well as increased fiscal spending from the administration of president-elect Donald Trump.

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Low

The euro fell to a 14-year low against the dollar, dropping to $1.0342 after the data’s release.

The dollar gained against the yen as well, reaching 118.60 yen, its highest since December 15th and just a hair below its highest point since February as a holiday in Japan thinned Asian trading.

The greenback also rose against the Swiss franc to its highest since December 15th. “Even though there’s a lot of doubt and uncertainty and a lot of weird rhetoric in the US, market participants are giving the benefit of the doubt to an administration that is going to be very pro-business,” said Juan Perez, currency strategist at Tempus in Washington. – (Reuters)

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