US Dollar Soars On Risk Aversion

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US Dollar Soars On Risk Aversion

US Dollar Soars On Risk Aversion

Despite mixed data from the United States, the dollar is rallying against most of its counterparts in today’s trading. It reached a new high for 2014 against the euro with EUR/USD dropping to a low of 1.3456 and breaching major support at the 1.3500 handle. Meanwhile, GBP/USD is trading around 1.7040 during the New York session after opening at 1.7068.

While reports on manufacturing and the housing market showed positive signs of economic recovery, inflation numbers for June give the Federal Reserve one more reason to sit on the sidelines and not be in a hurry to raise interest rates.

Consumer prices rose at a slower pace at 0.3% compared to the 0.4% uptick that we saw in May. Meanwhile, excluding big-ticket items, the core CPI posted a 0.1% uptick which fell short of the 02% forecast and May’s 0.3% reading.

Meanwhile, the Richmond Manufacturing index reflected better-than-expected conditions in the state’s manufacturing sector, printing at 7, coming from its reading of 3 in June and the forecast at 5. Data on the housing market also topped forecasts showing that 5.04 million worth of existing home sales were sold during June, affirming speculations that the housing market is stronger. Analysts only estimated it to total to 4.98 million for the month.

More than the positive figures though, the dollar is benefiting in the market’s risk-averse environment. Investors are worried about the consequences of the European Union imposing tougher sanctions on Russia. Not only is the country a major oil producer in the region, it is also a major economic and military super power.

Of course, faced with such concerns, investors are fleeing towards safe haven assets and one of the market’s favorite is U.S. Treasuries. So as risk aversion heightens amid the geopolitical tensions in Europe, investors become increasingly in favor of US government bonds.

Developments in Europe will likely dominate price action in the next few days. Markets will definitely look forward to the PMI reports from Spain, France and Germany tomorrow as these data are expected to reflect the effect of geopolitical tensions in Europe on the economy.

To contact the reporter of the story: Jonathan Millet at john@forexminute.com.

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