The US dollar gained against a basket of major currencies on Thursday and kept its gains at the start of Friday’s trading. The reason for the rally was divergent monetary policies of major central banks.
The European Central Bank refrained from expanding monetary policy during yesterday’s meeting, but President Mario Draghi sent a strong signal during his press-conference that European policy makers would review and may reconsider the policy in March. Meanwhile, pressure is mounting on Haruhiko Kuroda, Governor of Bank of Japan, to take actions to stimulate economic growth and inflation as he had promised but failed to deliver.
In contrast to other major central banks, the Federal Reserve had hawkish bias, raising interest rates in December — a bullish factor for the dollar. The problem is that recent macroeconomic reports do not suggest that such hawkishness was warranted. Thursday’s data was no different with jobless claims rising unexpectedly and the Philadelphia Fed manufacturing index remaining in the negative territory.
EUR/USD dropped from 1.0874 to 1.0843 as of 1:32 GMT today. USD/JPY was at about 117.63 after jumping from 116.91 to 117.69 yesterday. GBP/USD acted differently, rising from 1.4188 to 1.4220 during the previous session and staying near that level during the current session.
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