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THE TAKEAWAY: Although starting the week by gapping higher, the U.S. Dollar Index has ended the week in slightly negative territory as investors await a solution to the crisis in Cyprus.
The U.S. Dollar gapped higher mainly due to a sharp drop in the Euro as a bailout deal for Cyprus emerged over the weekend. Cyprus, despite being a small economy reflects not only a bailout package, but a precedent by EU officials. After early gains, the Dollar trended downwards and then rallied sharply again as the ECB’s Asmussen said that the Euro area was in a light recession which saw the Euro lose further ground against its major counterparts. T
The rise of the Dollar on the back of Euro weakness soon ran out of steam mid-week as U.K. data showed that the Consumer Price Index was in line with expectations at 2.8%, and that the Core Consumer Price Index beat estimates with 2.3%. This was positive news for investors which saw the Pound rally against its American partner.
Speculation that the Bank of England may pursue more quantitative easing was then dampened as the BoE released minutes which revealed that Mervyn King, an advocator for ‘printing more money’, had been defeated in a vote to add stimulus. News of this as well as improved retail data released late in the week, again sent the Pound higher against the Greenback as investors found reason to buy the British currency which has seen significant weakness in 2013.
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Source: Daily fx