The US Dollar strengthened against the Pound and recovered from a two-week low against the Euro on Wednesday after data showed that producer prices rose more than economist expectations, fuelling speculation that the Federal Reserve will continue to taper its quantitative easing programme.
According to data released by the Washington based Labour Department, US producer prices made their largest increase in six months in December. The Producer Price Index climbed by 0.4%, the biggest increase recorded since June 2013 reversing the 0.1% decline in November. Despite the PPI rise economists see that the level of inflation in the world’s largest economy remains low despite the economic recovery.
“I think the Fed still thinks inflation is too low. That said, policymakers will still reduce their asset purchases by $10 billion to $15 billion at the end of the month. We are underlying growth at 3% and that’s better than what we’ve had,” a senior economist at PNC Financial Services said.
Also supporting the US currency was the release of a separate report which showed that manufacturing in the New York region of the country expanded this month by 12.51, beating forecasts for a figure of 7.48.
“This is a big vote of confidence for the manufacturing sector; it’s encouraging in terms of market sentiment. Broad based Dollar strength is back,” said a global market strategist at Bank of New York Mellon in an interview with Bloomberg.
As a result of the strengthening US Dollar currencies such as the Australian and Canadian Dollars weakened.
Sterling could recover some ground on Thursday morning if the latest UK house price data comes in strongly.
US Dollar (USD) Current Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
US Dollar,
,Pound Sterling,0.6119 ,
US Dollar,,Euro,0.7353 ,
US Dollar,,Canadian Dollar,1.0952 ,
Pound Sterling,,US Dollar,1.6343 ,
Euro,,US Dollar,1.3594 ,
[/table]
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