It has been a very good week for the U.S. dollar and a really bad one for the euro and Canadian dollar, among others. The rally has lifted the Dollar Index to its highest level since early February and possibly on course to 100.
Stock markets were erratic on Thursday with most major arenas violently swinging between losses and gains as the messy combination of depressed oil prices, a resurgent U.S. Dollar and rising European Central Bank stimulus hopes kept investors on edge.
The Canadian dollar has been among the weakest of currencies in G10 in recent days. The sell-off has been sparked by the Bank of Canada’s Governor, Stephen Poloz, who on Wednesday said the central bank “actively” discussed the prospects of adding more stimulus into the economy, but in the end decided to keep rates unchanged.
The dollar held its earlier gains versus a basket of currencies on Friday as data on U.S. retail sales and producer prices in September came within analysts expectations, supporting the view of a modest U.S. economic expansion.
The main story last week in the markets was the flash crash of British pound on Friday. The currency lost 6% in under two minutes at the start of the Asian trading session. There are multiple theories on what sparked the move with algorithmic trading and human error among others. The British pound touched 31-year lows and although it recovered some ground it will close the week under the 1.25 price level.
While the headline reading of 156,000 jobs being created in the U.S. economy over the previous month might not be enough to inspire further dollar strength across the financial markets, the United States has released another solid jobs report that supports the aspirations of the Federal Reserve to raise U.S. interest rates before 2016 is over.
At 23:07 GMT (7:07 PM ET) on Thursday, October 6, the British pound/U.S. dollar (GBP/USD) currency pair started falling from its established level around 1.2600. The selling snowballed a couple of seconds later on the break of the 1.2500 level as the pair hit an air pocket in the low liquidity post-North-American, pre-Asian session "twilight zone."
Britain’s pound slumped to a three-decade low on Tuesday as concerns over Brexit were compounded by the renewed strength of the dollar on resurgent U.S. interest rate hike expectations. Sterling was at its weakest since 1985, hit by a growing sense that the UK may be heading for a 'hard' Brexit where it severs links to the EU's single market in favour of total control over immigration.
The U.S. dollar has staged a broad-based rally today, which caused the GBP/USD to tumble to a new 31-year low and the EUR/USD currency pair momentarily dipped below its 200-day moving average once again. The dollar has found support from the stronger ISM manufacturing PMI that was released on Monday.