The US dollar traded higher on Tuesday amid a bigger than expected rise in consumer confidence, while stocks and oil prices also rallied in low volume trading.
The dollar index, a weighted average of the dollar against a basket of six currencies, rose 0.4% to 98.34. It was the index’s third daily increase in the past eight days.
The US currency posted sharp gains against its European rivals, with the GBP/USD exchange rate falling below 1.4800 for the first time since April. The pair bottomed out at 1.4786 before consolidating at 1.4799, declining 0.6%. Initial support is likely found at the psychological level of 1.4700, which is also the low from April 15. On the upside, initial resistance is likely found at 1.4949, the high from December 24.
The EURUSD descended quickly in the New York session, falling 0.5% to 1.0908. The pair’s next support level is likely fond at 1.0860, the 50-day simple moving average. On the upside, initial resistance is likely found at 1.0990, the high from December 28.
There were no clear catalysts for the dollar’s rally on Tuesday, a sign that low-volume volatility may have been responsible for the sudden advance. Investors may have also been encouraged by a stronger than expected consumer confidence report that bodes well for holiday spending.
The Conference Board’s consumer confidence index rose to 96.5 in December from 92.6 in November. The reading was well above forecasts calling for 93.8.
“As 2015 draws to a close, consumers’ assessment of the current state of the economy remains positive, particularly their assessment of the job market,” said the Conference Board’s Lynn Franco in a press release. “Looking ahead to 2016, consumers are expecting little change in both business conditions and the labor market.”
US economic growth slowed to 2% annually in the third quarter, putting the world’s largest economy on pace for less than 3% growth for the tenth consecutive year. Growth is expected to pick-up in the fourth quarter on the strength of consumer spending.
US stocks rebounded sharply on Tuesday after trading lower in each of the past two sessions. The Dow Jones Industrial Average climbed nearly 150 points in intraday trade. The S&P 500 Index also added 1%.
Gains on Wall Street followed a strong European session. The pan-European STOXX 600 Index advanced 1.2%. All of Europe’s major averages added more than 1%.
Oil prices also rallied on Tuesday following a more than 3.5% rout at the start of the week. US crude prices rallied $1 or 2.7% to $37.81 a barrel. Brent crude also climbed $1.14 or 3.1% to $37.76 a barrel.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.