26, August 2013

EUR/USD (a 4-hour chart)

EUR/USD (a 4-hour chart)

The U.S. dollar rose against most currencies on Thursday on expectations that the U.S. Federal Reserve may narrow the quantitative easing program in September. Despite the fact that the number of initial job claims rose by 13,000 to 336,000, the data were better than expected remaining about 5-year low, ie, the labor market situation has not become much worse.

PMI production sector rose to 53.9, a 5-month high. Manufacturing activity of the Kansas City Fed is restored; demand for labor in a private sector has increased for the first time in 6 months. Thus, the data support the idea that the U.S. economy is recovering, and the Federal Reserve may begin to reduce bond purchase program next month. On Wednesday the FOMC minutes showed that the majority of the committee members agreed with Ben Bernanke on the issue of the reduction of monthly purchases of assets.

Narrowing of the quantitative easing by the Fed will support the dollar, as the stimulus involves a flood of liquidity, ie, printing money to buy back assets which reduces the value of the currency.