Dollar Strengthens Broadly on Raised Fed Expectations

Last Friday’s better than expected U.S. labor data helped to push the U.S. Dollar Index to a new 3-year peak; the Index measures the greenback’s relative strength against a weighted basket of its major peers. The U.S. Labor Department reported on Friday that 195,000 new private sector jobs had been added in June against analysts’ expectations of only about 165,000. Individually, the U.S. Dollar strengthened broadly against its peers, only failing to appreciate against the Japanese Yen which was supported by escalating concerns of tightening credit lines in China.

The U.S. Dollar Index traded at a high of 84.588 .DXY, a level last reached three years ago, before retreating slightly to 84.503 .DXY. On Friday, following the labor report release, the Index surged 1.5%, the largest single day’s gain in nearly two years. The labor news has supported speculation that the Federal Reserve could begin to rein in its asset purchase program as it has promised to do if the labor data held up and is likely to begin the curtailment before the end of this quarter. The USD/JPY pair also traded at a high of 101.54 Yen, though gains were limited by Japanese exporters selling spree, before settling back to 101.16 Yen. The EUR/USD pair traded at $1.28.21, close to the 7-week low of $1.2806 which was struck on Friday.