The dollar surge continued this week, hitting a four-month high against the euro as optimism over the pace of the US recovery supported the currency.
The dollar benefited as a report on Wednesday showed record growth in US private sector employment. Analysts said the figures were the latest in a series, ranging from trade to retail sales, suggesting the US recovery was gaining speed.
Although the US employment report on Friday showed non-farm payrolls rose by less than expected in December, it did little to stem the dollar’s gains.
Over the week, the dollar climbed 2.5 per cent to Y83.21 against the yen, rose 0.5 per cent to $1.5515 against the pound, gained 3.4 per cent to SFr0.9660 against the Swiss franc and was up 2.2 per cent at $0.9975 against the Australian dollar. The dollar also rose 3 per cent to $1.2970 against the euro on the week, as concerns over the fiscal health of countries on the periphery of the eurozone intensified. The euro slid amid a sharp sell-off in peripheral government bonds ahead of a flurry of issuance next week.
On Wednesday, Portugal was forced to pay a sharply higher price to refinance its debt and was again the focus of concern on Friday, with the yield on its benchmark bonds at euro-era highs. Jane Foley at Rabobank said that as yields rose, the chances of a bail-out for Portugal increased: “While the relatively small size of Portugal’s funding needs suggests that a Portuguese bail-out will not exert a huge amount of pressure on the eurozone support fund, it will raise the risk of a speculative attack on the Spanish debt market.”
During the week, the euro dropped 2.5 per cent to £0.8355 against the pound and lost 0.6 per cent to Y107.91 against the yen.
Elsewhere, concerns in certain emerging market countries that the strength of their currencies could undermine their export sectors re-emerged, triggering renewed “currency wars” rhetoric. The Chilean peso tumbled 6.5 per cent to 496.50 pesos against the dollar over the week after the country announced it was increasing its dollar reserves in a bid to check gains in its currency.
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