Is The Greenback Pushing Back?

As we have noticed during the last several days, the US dollar has continued its recovery progress against most of the 16 most activated currencies. The US dollar extended its gains against the EUR and the GBP after the poor British retail sales figures. The Sterling came under pressure after a 0.1% slip in UK retail sales in October and it amplified speculation that the UK central Bank will lower interest rates in order to stimulate consumer spending. The dollar rose against the EUR, as the 13-nation currency fell to $1.4612 in the late afternoon from $1.4676, and the pound dropped to $2.0434 from $2.0563. The EUR continued to weaken as investors continued to cool down by following the yen-funded carry trades in the course of growing risk aversion stemming from the lingering credit problem. This risk aversion sentiment helps the greenback to get stronger as many investors invest back in the US currency.

In addition, The U.S. Labor Department reported yesterday that Consumer Price Index rose by 0.3 percent in October, the second month in a row with inflation at that level. The main reason was due to an additional increase in energy prices and an increase in food costs. On the other hand, also yesterday, The U.S. Labor Department announced that the amount of unwaged workers who filed claims for unemployment benefits increased by 20,000 last week to 339,000, the highest level in four weeks. The Federal Reserve on Thursday injected its biggest daily infusion into the U.S. banking system since September 11, 2001 attacks. The Fed injected $47.25 billion in temporary reserves and by doing so the system increased by a net $6.75 billion, as the central bank added more liquidity to stem a rise in the federal funds rate in order to try to increase step by step the power of the US dollar. So we may see the dollar rally temporarily but the longer term outlook still looks bleak for the greenback.