he dollar hit a six-month high against the euro amid a growing realisation that the US economy was not deteriorating as quickly as others across the globe.
The dollar rose to a peak of $1.4881 against the euro, its strongest level since February, and hit a 21-month high of $1.9070 against the pound. David Bloom, of HSBC, said the tide had turned in favour of the dollar.
He said that, while US economic data had been surprising on the upside recently, the deterioration in other economies had been dramatic. “This does not necessarily mean that the US economy is in good shape, just that relative to expectations the economy is improving.”
He said that, in the US, the policy response to the global slowdown had already occurred, with the Federal Reserve slashing interest rates and the government providing a fiscal stimulus. “The market fears that monetary policy is now set to be loosened outside the US.”
The dollar put in its best performance since the 1999 inception of the euro last week after Jean-Claude Trichet, president of the European Central Bank, warned of a slowdown in eurozone growth in the coming months.
This destroyed expectations of further rate rises in the eurozone, sending the dollar sharply higher against the single currency.
This provided the catalyst for the dollar to break higher from its recent ranges against a raft of currencies, sending it up across the board. The dollar’s rally ran out of steam during European trading on Monday, however.
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