Dollar crashes and euro rallies to year high

October 17, 2013

The US dollar took a hard hit today following the US debt deal, as it was sold off sharply against risk currencies like euro, sterling and aussie, and also against the yen and the Swiss Franc.

The euro rallied to a 13-month high, after a sharp breakout in the early European session and through to the start of the US session. EURUSD shot up by over 1 percent to $1.3681, the highest since November last year, as of 1530 GMT.

A lot of today’s rally is due to increased risk appetite on relief of a US budget deal, but also many investors were short the euro all this time that the wrangling was going on in Washington, so it was at extremely oversold levels.

Another reason for risk currencies rallying is due to the fact the dollar is weaker as a result of expectations of a delay in the Federal Reserve tapering stimulus before the end of this year. The 16-day US government shutdown will have an impact on US GDP growth, which will make the Fed less willing to remove stimulus before March.

USDJPY crashed to 97.72 after the dollar was weakened further following weak US economic data. Jobless claims missed and were worse than expected, while the Philly Fed manufacturing index also disappointed.

Sterling surged higher all day to $1.6171 by the time the US session came around. Also helping lift sterling was a strong UK retail sales report today. Sales rose +0.7%m/m (excluding auto) and +0.6%m/m on the headline.

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