US dollar on form once more, bias is for further gains as consensus grows that asset purchases are unlikely

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Published on Thursday, 16 August 2012 10:02

Written by Rob Samson

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"Our US data surprise index suggests the recent run of better data outcomes can continue" - Westpac.

The US dollar (Currency:USD) is gathering pace through the European morning session as markets turn decidedly bearish.

The pound dollar exchange rate is 0.07 pct higher at 1.5693 at 10:53 AM in London.

The euro dollar exchange rate is 0.14 pct down at 1.2272.

The Australian dollar to US dollar rate is lower at 1.0488.


US yields have kicked higher this week, on the back of continued better data flow.

"Our US data surprise index suggests the recent run of better data outcomes can continue and in turn this is likely to bias the USD higher," says a morning note from Westpac Institutional Bank.

A move in the US dollar index towards the 84.0 level is not out of the question over the coming period suggest analysts.

While yesterday’s headline CPI in the US was on the soft side of consensus, industrial production marginally beat expectations and the housing market index climbed to levels unseen since 2007.

"That was enough to persuade investors that the Fed is now less likely to embark on another round of asset purchases in September – especially when taken together with the recent non-farm payrolls and retail sales reports (both of which showed considerable resilience)" says Gareth Berry at UBS.

Elsewhere, Dallas Fed President Fisher stuck to his hawkish stance and also warned that further stimulus measures now might be viewed as a “political” decision given the proximity of the upcoming US elections.

Fisher said fiscal and regulatory uncertainty is inhibiting investment, but he does not see a “high likelihood” of a recession in 2013.

"All this supports the view of our US economists that further asset purchases are unlikely and that if the Fed does choose to act in September, a more likely approach would be the introduction of a targeted bank lending scheme delivered via the Fed’s discount window − where cheap credit would be made available in return for bank pledges to on-lend the cash to the real economy," says Berry.