U.S. economy still going strong
Dollar gains as economic strength supports sentiment
LONDON – The dollar rose to its strongest level of 2020 on Monday after last week’s run of data confirmed that the U.S. economy is holding up well, while China’s yuan briefly hit a new six-month high.
Mostly, however, it was another quiet start to the week for currencies, with FX volatility near all-time lows and little in the way of key economic data.
Investors are focused on central bank meetings in Japan, on Tuesday, and the European Central Bank meeting on Thursday.
Trading volumes were thin as Lunar New Year approaches in Asia and with U.S markets closed for Martin Luther King day on Monday.
Figures on Friday showed U.S. homebuilding surged to a 13-year high in December. Retail sales also rose and a gauge of manufacturing activity rebounded to its highest in eight months.
The strength in the U.S. economy underlines its relative outperformance versus the euro zone, although recent data point to a bottoming out in the European economy, as well as a recovery in China.
“Data released since the previous ECB meeting have been positive and consistent with the slightly more optimistic tone struck by (ECB President Christine) Lagarde in December regarding the economic outlook,” RBC Capital Markets’ currency strategist Adam Cole said.
The euro has failed to benefit much from the more positive noises, however, and the euro/ dollar exchange rate is firmly stuck within a tight trading range.
The dollar edged up 0.1% against a basket of currencies, with the index rising to as high as 97.727, its strongest since Dec. 24. The euro was down marginally at $1.1085
China’s offshore yuan increased to as high as 6.8458
China on Friday posted its slowest annual growth figure in almost 30 years, although December data showed revived business confidence and quickening factory output.
Sterling dropped on Monday to as low as $1.2962