The US dollar held firm and hopped into positive territory on the week, with sentiment heartened by the Federal Reserve’s generally upbeat assessment of the world’s top economy. Although the Fed appears undecided on when it would raise interest rates for the first time in almost a decade, market confidence is running high it would happen before year-end. Going forward, good news on US growth, jobs and inflation would bring out the hawkish undertones of the Fed’s statement this week and strength the case for a September rate hike, buoying the dollar. However, subpar news on the economy would highlight the statement’s dovish side and curb strength in the dollar by suggesting a later lift-off. A rate hike would put an arrow back in the Fed’s quiver and give it stimulus ammunition should it need it down the road.

Euro

A pinch of optimism by the Fed in the US economy was enough for the euro to squander its gain on the week against the dollar. The euro tipped into shallow negative territory for the week after the Fed’s statement this week noted ‘solid’ gains in the US job market, a rate hike supportive assessment. The Fed renewed a headwind on the euro by reminding markets of the stark policy divergence between the US and the super easy eurozone.

Sterling

The stronger pound swam against the stream and managed a gain against the otherwise firmer greenback. Sterling’s brighter bias appears to have legs since its central bank inspired. News of stronger UK growth this week added weight to central bank views that interest rates may rise sooner rather than later. Still, sterling isn’t out of the woods with UK inflation running low, at zero, which argues for low rate for longer.

US dollar

The dollar had a muted reaction to a generally decent set of US data on growth and jobs. The world’s biggest economy grew at an annual rate of 2.3 per cent in the second quarter, cooler than forecasts of 2.6 per cent, but first quarter growth got upgraded to a 0.6 per cent increase which erased earlier estimates of a negative reading. Jobless claims rose by 12,000 to 267,000, a few thousand less than expected. Data released indicates that the US fundamentals appear in sturdier shape, keeping the Fed on track to raise rates. However, uncertainty over the timing suggests the pace of dollar strength going forward may resemble more of a tortoise than a hare.

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