U.S. Dollar strengthens against the Pound Sterling and the Euro

The Pound Sterling and the Euro remained soft against the U.S. Dollar, on the expectation that interest rate differentials will shift in the months ahead.  A decline in business and consumer confidence, specifically manufacturing activity and retail sales growth, as evidenced by weak economic data, lead to the suggestion by analysts that the Euro zone will experience a significant slowdown in future growth rates.

The U.S. Dollar has largely benefited from comments recently made by the Federal Reserve Bank, which signaled a halt to the Fed’s rate cutting cycle. The recent injection of cash payments in the form of incentive checks to American households by the U.S. federal government, combined with increased focus on inflationary risks, resulted in a stronger U.S. Dollar versus other major currencies.  According to James Hughes of CMC Markets, analysts are speculating that the U.S. economy has turned a corner, and is the basis for much of the recent appreciation of the U.S. Dollar. 

While Thursday’s statement issued by the ECB temporarily buoyed the Euro, analysts have seen through the rhetoric and are expecting to see an interest rate cut in the near term, in an effort to curb inflation in the Euro zone.  The Pound Sterling, meanwhile, remains weak on what is perceived as worsening economic fundamentals in the United Kingdom.  Speculators anticipate that the Bank of England will move to cut key interest rates in the next month or so.
At 1:50 p.m. in Tokyo (04:50 GMT), the U.S. Dollar traded against the Pound Sterling at 0.7905 versus 0.7914 on Friday’s N.Y. close, while the Euro traded at $1.5412 versus $1.5391 on Friday’s close in NY.