The US dollar rose against other major currencies on Thursday morning as speculation that the Federal Reserve would end its monetary easing programme sooner than had been expected helped the US currency to strengthen.
The dollar index reached its strongest level in five months after minutes of the Federal Reserve’s last meeting released on Wednesday evening showed a number of policy makers expressing concern about the impact of open-ended monetary easing by the central bank.
The Fed has been buying $85bn a month of bonds in its efforts to stimulate the US economy.
“The tone of the minutes has significantly shifted to the hawkish side,” said analysts at Morgan Stanley. “The Fed minutes have brought forward market expectations that the FOMC will end QE3 in the second half of this year rather than in the first half of 2014, which is US dollar-positive.”
The minutes helped the pound fall to its weakest level in more than two and a half years against the dollar, hitting $1.5132, its lowest level since July 2010.
Sterling had already come under significant pressure on Wednesday after minutes of the Bank of England’s last policy meeting showed that more members than expected were in favour of more monetary easing to stimulate the UK economy, opening up a clear policy divide between the UK and the US.
The euro fell below $1.32 against the dollar to its weakest level in six weeks as figures showing a slowdown in Germany’s manufacturing sector also weighed on the single currency.
Markit’s index showed that manufacturing in the eurozone’s largest economy expanded in February, but by less than analysts had forecast. Overall eurozone manufacturing hit a two-month low, while services hit a three-month low, with both industries remaining in contraction territory.
The single currency dipped 0.7 per cent to $1.3166.
Japan’s yen was the only major currency to strengthen against the US dollar on Thursday morning as traders pared expectations that Japan could embark on foreign bond buying to stimulate its own economy, after its prime minister, Shinzo Abe, cast doubt on the option earlier in the week. The dollar fell 0.6 per cent to Y93.01, a six-day low.
