The Dollar rallied across the board on Friday, posting its biggest weekly rise against a basket of currencies in more than a year, on profit-taking in the Euro and month-end squaring up of positions by Corporate. It was also supported by optimism that further Federal Reserve interest rate cuts would help the world's biggest economy avoid a recession, temporarily shifting market focus away from a diminishing yield appeal. Forex traders attributed the Dollar's surge to a combination of factors ranging from month-end transactions, chart levels, and a drop in the price of Gold which dropped to a 10-day low on profit-taking. Analysts said the euro could slip to 1.4500 by year end.
On Friday, EurUsd ended at 1.4634, down 0.84%, its lowest level in more than a week. It scaled also on Friday session peak of 1.4785.
The Dollar also got a lift from a magazine report that Bahrain would maintain the Dinar's peg to the Dollar as OPEC prepares to meet next week amid growing pressure on some Gulf States to unpeg their currencies of the sluggish dollar.
Fed Chairman Ben Bernanke hinted late on Thursday that the central bank might cut rates to help the economy weather a resurgence of financial market turmoil. Lower US interest rates usually weigh on the Dollar because they reduce the yield on Dollar-denominated assets, but this time analysts said the market was taking a longer view adding it is very unlikely that the ECB is going to increase rates any time soon. The euro is losing strength because of that and could correct down to 1.4500.
UsdJpy was up 1.32% at 111.23, well off a 2-1/2-year low of 107.22 hit last Monday. The EurJpy was up 0.48% at 162.78 and UsdChf gained 1.35% at 1.1320. UsdCad rose 0.16% to 99.85, while NzdUsd fell 0.86% to 0.7643.
In remarks to the Charlotte Chamber of Commerce, Bernanke said a resurgence in financial market strains had dimmed the outlook for the US economy, suggesting the central bank will cut rates when it meets on Dec. 11th. But some analysts still said the market was likely to continue being driven by interest rate differentials rather than stronger growth prospects and expected further monetary easing to undermine the Dollar.