Dollar strengthens on positive economic data

Investors are being drawn to the US dollar after strong economic data coming out of the States raised expectations that the Federal Reserve will begin to rein in its easy money programme. The yen has also been given a boost by falling Japanese stocks.

The yen is up 0.3 per cent against the greenback to 102.14. On Tuesday the yen dropped 1.4 per cent against the dollar after data indicated consumer confidence in the US hit its highest level in five years this month.

Economists are predicting that the dollar will remain attractive because growth in the States is stronger than in Europe and Japan. The end of quantitative easing will give an additional boost.

The Australian dollar is suffering because of the strength of its US rival. The Aussie dropped 0.4 per cent to $0.9543 as it continues to head towards parity. Pressure was placed on the currency at the beginning of May when the central bank introduced a surprise rate cut. Construction work in Australia also fell by 2 per cent in the last quarter even though the prediction had been for a 1 per cent rise.

Suggestion that the European Central Bank is preparing to cut interest rates saw the euro lose 0.6 per cent to $1.2860.