Euro Continues Climb as Dollar Trails Behind

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The euro hit a seven-week high Wednesday as it continues to climb while the dollar trails behind. Despite Wednesday’s numbers, investors and market strategists have kept hope alive for the dollar after the recent release of the minutes from the Federal Open Market Committee (FOMC) meeting that was held late last month. The dollar has been weighed down by recent housing figures released by the U.S. Commerce Department in their monthly report. The report, which was released on Wednesday morning, showed that January’s figure of 880,000 privately-owned housing starts (new houses that have officially begun construction) was 16 percent below December’s 1,048,000 housing starts and 2 percent below last January’s 898,000 housing starts. January’s single-family housing starts were also down 15 percent from December.

Another report released by the Commerce Department showed that new orders for manufactured durable goods (cars, home appliances, consumer electronics etc.) in December has decreased $10.3 billion or 4.3 percent compared to new orders last December. The report also showed that shipments of manufactured durable goods were also down in December. Both the housing report and the manufacturing report disappointed investors, consequently putting pressure on the dollar on Wednesday. The U.S. Dollar Index, or the measure of the value of the dollar relative to a basket or group of other foreign currencies, fell to a year low of 79.927.

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Janet Yellen, pictured here, was selected as Chair of the January 28-29 FOMC meeting which decided to reduce the Fed’s monthly asset purchases by $10 billion.

Although the euro climbed to $1.3766, setting a new 7-week high against the dollar, the Federal Open Market Committee minutes showed the Fed’s plan to reduce quantitative easing, or the purchasing of assets to stimulate the economy. The report, which was released on Thursday, explained how the Committee’s decision in December to reduce the monthly pace of asset purchases “had not resulted in an adverse market reaction.” The report also showed a plan to reduce the monthly pace of asset purchases by $10 billion. This announcement gave investors and market analysts hope for the future of the dollar – rather than relying on the federal government to stimulate the economy by purchasing assets from banks, the economy would rather depend on the yields of other securities and assets. After the release of the Fed minutes, the Dollar Index rose to 80.2 at the end of Wednesday. The dollar and the euro were both fell below the Japanese yen. The dollar was at 102.31 yen, down from 102.34 yen, while the euro was at 140.51 yen, down from 140.82.

Despite the U.S. Department of Commerce’s monthly report which showed that housing starts were at a three year low, followed by another report showing that manufacturing in the U.S. was also at a yearly low, some investors are hopeful that the yield of U.S. assets will step up to fuel the economy. Some people are skeptical of the FOMC’s plan to reduce asset purchasing while others blamed “weak data” for causing the dollar to drop value and the euro to hit a 7-week high on Wednesday. Only time will tell whether or not the Fed will stick to their plan, and if their plan will actually work.

By Tyler Shibata

Sources:

Reuters
CNBC
The Economist
U.S. Department of Commerce Advance Report on Durable Goods
U.S. Department of Commerce New Residential Construction January 2014

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