Dollar Strengthens Against Major Currencies of the World

The dollar rose against the major currencies of the world as soon as unemployment levels decreased by a small extent.

Last month, as many as 20,000 jobs were lost, indicating a drop in construction employment and government and local hiring rates in the economy. Due to this, factory work week and overtime hours both increased. However, with the economy showing good signs of recovery, the employment level of the economy is slowly rising. Due to this sentiment, the dollar rose 0.7% against the yen to 89.71 from 89.05.

The Euro, however, has been trading at a low against the dollar for eight months because of widening budget deficits in Greece, Portugal and Spain. This will also force policy makers to maintain low interest rates. The 16 nation European currency is down 1.3% against the dollar and 2.2% against the yen this week. Until the Greece issue is solved, uncertainty around the Euro will continue to prevail. Slowdown in the German industrial production and internal strains in the Euro area may further add downward pressure on the Euro.

The Swiss Franc however reversed the gains made earlier against the Euro as the Swiss National Bank sold the currency to prevent the gains that could lead to deflation. The franc fell to 1.4698 per Euro from 1.4642, after trading at 1.4558.

On the other side, there is pressure on China to allow its currency to appreciate. China has prevented large gains in the Yuan since July 2008. After the crisis was over, the Yuan was allowed to rise. The pressure to make the Chinese Yuan flexible is increasing because of the cascading effect it is having on the major currencies of the world, especially the dollar, and China may succumb to this pressure eventually.