Forex Market Update: Improving U.S. Economic Outlook Boosts Dollar

The U.S. dollar, which remained under pressure for many months, has rebounded strongly against all major traded currencies in the current year.

While significantly improving U.S. economic macroeconomic environment ( as reflected by barrage of better-than-expected economic indicators) has been the key factor behind why global investors are increasing their exposure to “Almighty Dollar”, decline in Japanese yen in the wake of monetary easing and weakness in the Sterling owing to stagnating economy of the U.K. is also propelling the greenback. The yen traded at a 3-½ year low against the dollar earlier this week before recovering somewhat.

Just last week, the U.S. dollar index traded to seven month high against major rival currencies. Earlier this week (March 12), the greenback hit 2 ½ year high against the sterling after a data release showed that U.K’s manufacturing output in January contracted more-than-expected.

On Wednesday, the dollar received more boost after the Commerce Department’s data showed that retail sales rose at a fastest pace since September 2012 in February. Euro meanwhile sagged against the dollar on Wednesday after euro zone’s industrial output showed more-than-expected contraction in January.

A data provided by the Wall Street Journal showed that the WSJ Dollar Index, a gauge on U.S. unit’s performance against a basket of seven most traded currencies, has climbed about 5% so far this year. On Wednesday, it rose 0.3% following retail sales data release.

Meanwhile, analysts at UBS bank forecast the U.S. dollar will be the best-performing currency in 2013. According to UBS, the Federal Reserve might feel the need to pause its ongoing $85 billion worth monthly bond purchase program amid significantly improving U.S. economy.

Nevertheless, analysts are worried that a stronger dollar will put pressure on the corporate earnings.

“The stronger dollar definitely hurt us, everything we made outside the U.S. got translated into fewer dollars,” said Dennis Zeitler, chief financial officer of Mine Safety Appliances Co, according to the Wall Street Journal.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.