This week was very positive for the US dollar, allowing it to reach a new high for this year against the euro and to gain against other major peers. The major reason for the rally was the comments of US policy makers.
The minutes of the latest Federal Reserve policy meeting demonstrated that US Fed members are considering raising interest rates earlier. Economic data from the United States supported the optimistic outlook for US economic growth.
Another major event was the speech of Fed Chairperson Janet Yellen at the Jackson Hole Symposium. She remarked on the labor market improvement:
More jobs have now been created in the recovery than were lost in the downturn, with payroll employment in May of this year finally exceeding the previous peak in January 2008.
She added:
Over the past year, the unemployment rate has fallen considerably, and at a surprisingly rapid pace.
While the tone of her speech was not completely hawkish, more dovishness was priced in, allowing the dollar to rally. The gains were limited, though, due to profit-taking.
EUR/USD dropped from 1.3392 to 1.3243 — the lowest weekly close since September. GBP/USD declined from 1.6728 to 1.6573, the lowest close since March, over the week, while USD/JPY advanced from 102.32 to 103.95 — the strongest weekly closing rate since January.
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