Dollar strengthens as US growth lifts holiday mood

NEW YORK - Reuters

The exterior of the New York Stock Exchange is pictured with a Christmas tree in front of it in the Manhattan Borough of New York, Dec. 23. REUTERS Photo

The strongest growth for the world’s largest economy in over a decade meant there was plenty of Christmas cheer in global markets Dec. 24, as stocks continued their strong run and the dollar hovered at an 8-1/2 year high.

Risk appetite was boosted after data on Dec. 23 showed the U.S. economy grew at a stellar 5.0 percent in the third quarter, the quickest pace in 11 years and the strongest sign yet that growth has decisively shifted into higher gear.

The data drove both the Dow Jones and the SP 500 benchmark U.S. indexes to record closing highs, and Asia  and Europe saw their stock markets edge up in synchrony in largely quiet pre-holiday trading.

It was the dollar, though, that remained the main channel of traders’ optimism. Having reached an 8-1/2 year high against a basket of major currencies, it was trading around 120.44 yen and 1.2188 to the euro.

With economists penciling in a slightly earlier date for the first post-financial crisis rise in U.S interest rates, the two-year U.S. Treasury (government bond) yield also rose to a high not seen in almost four years.

“As is to be expected at this time of year trading volumes have really plummeted, but pretty much what we see is the stronger dollar trend continuing,” said Alvin Tan, an FX Strategist at Societe Generale.
Focus also remained on oil as it hovered just above $61 a barrel following an almost 50 percent fall over the last six months.

Eyes on Russia

It was also on Russia after Standard and Poor’s warned it could downgrade the country’s credit rating to ‘junk’ early next year, and as Moscow kept up the confrontational rhetoric with the West and NATO over Ukraine.

The Russian ruble plunged to an all-time low in mid-December on the back of lower oil prices and Western sanctions, which make it almost impossible for Russian firms to borrow on open markets.

It has since regained some ground, shored up by informal capital control measures, but was a shade lower at 54.6 to the dollar after a morning spent in and out of positive territory.

“The credit watch placement stems from what we view as a rapid deterioration of Russia’s monetary flexibility and the impact of the weakening economy on its financial system,” SP said following its downgrade warning.