Dollar up as Fed easing looks unlikely

As prospects for a new wave of Federal Reserve easing have faded after positive jobs data from the US, the dollar hit a seven-week high against many other currencies on Wednesday and was broadly firmer in Asia. As the majority of American banks passed the Fed’s annual stress test yesterday, risk-takers were also provided with some comfort.

The euro hit $1.3050, a one-month low, as the dollar shot up to an 11-month high of 83.08 yen. The dollar index settled at 80.123 at last trade after climbing to 80.320 earlier in the day. In a 50 percent retracement of its rally between January 16 and February 24, the common currency found support at $1.3054 and was last at $1.3076.

The dollar became less attractive for funding carry trades as strong retail data pushed treasury yields up to a high not seen for many months, further shoring up the greenback. In the latest evidence that the world’s largest economy is improving, retail sales in the US saw a rise of 1.1 per cent after Friday’s positive jobs data.

In turn, the Fed left rates unchanged and gave a more optimistic outlook after its policy meeting. Julia Conronado of BNP Paribas said the Fed’s stance is great news for risky assets, adding that either it will inject more liquidity into markets or the outlook will continue to improve.