By: Barbara Zigah
The U.S. Dollar Index held close to a 10-week trough in Asian trading today, as market players await confirmation that economic growth will remain the focus for the U.S. Federal Reserve. As reported at 2:52 p.m. (EST) in Tokyo, the U.S. Dollar Index, which measures the greenback’s strength versus a weighted basket of major currencies, traded at 77.864 .DXY, slightly higher than the 77.814 .DXY low struck earlier this week. The U.S. Dollar has also slipped, for the 4th consecutive trading day, against the common currency Euro, trading at $1.3685, just off a 2-month peak of $1.3705 struck yesterday.
The markets are attributing the U.S. Dollar’s softness and the Euro’s strengthening to the differences in the positions of their respective central banks. The Federal Reserve Bank, in the form of Fed Chairman Ben Bernanke, has adopted a dovish tone, stressing the importance of their full employment mandate and dismissing (for the time being) inflation concerns.
Meanwhile, the European Central Bank, with ECB President, Jean-Claude Trichet at the head, warns primarily of rising Eurozone inflation, leading markets to speculate that a rate increase may be forthcoming. The markets are acknowledging those differences in bond pricing, with the spread between the U.S. Dollar and Euro 2-year note rising 110 basis points, whereas less than a month ago, the difference was 73 basis points.