Dollar hits new high

The continued strength of the dollar showed no signs of abating as the currency reached a peak of 77.413 as displayed by the dollar index, a device that follows the dollar against six major world currencies.

This is the strongest level the dollar has reached since January, and is exemplified by the six month high of $1.4631 that the dollar registered against the euro this morning.

With inflation in the US increasing by 1.2 percent in the month of July – a figure twice that expected – market analysts predicted that the Federal Reserve would raise interest rates.

Euro and pound fall

Alan Ruskin, of RBS, commented that the dollar was looking ‘bullet proof’ in the face of its 6% increase against the euro this month, and added that things looked positive ion the foreign exchange market:

“Once again it looks like the foreign exchange market will look on the bright side of life and focus on the rate implications that are seen as mildly dollar positive,” he said.

The continued strength of the dollar is reflected in the behaviour of other world currencies.

The pound continues to fall, with a drop of 0.2 percent - £0.7895 – against the euro and 0.1 percent against the dollar, with the intention of the Bank of England to keep interest rates as they stand being influential in this fall.

Commentators see the attitude of Timothy Besley, of the Bank of England’s monetary policy committee, in keeping the interest rates on hold as somewhat significant and a change in tactics from the UK financial powerhouse.

In the Far East the yen saw an increase in strength of 0.3 percent against the dollar, 0.4 percent on the pound and 0.3 percent on the euro.

The euro is subject to a fluctuating market at the moment, having seen a minor rise against the dollar during Wednesday morning, as German markets continue to recover slowly from an all time low of last month, but the currency is still seen as negative overall.

Trade deficit rallies

The continued strength of the dollar has its roots in the improvement in US trade deficit, with exports outstripping imports by the highest margin since as long ago as 1994. This flow of capital supports the price of the dollar continually against foreign currencies.

Having hit an all time low against the euro last month, these market trends have aided the dollars growth by over 7 percent since then as the US currency continues to exert its weight on the world currency market.