Dollar index remains near 9-year highs despite ISM report

Investing.com –

Investing.com – The dollar remained close to nine-year highs against the other major currencies on Friday, despite a downbeat report on U.S. manufacturing activity as expectations for a U.S. rate hike in the near future continued to lend broad support to the greenback.

The Institute of Supply Management said its manufacturing purchasing managers’ index fell to a five-month low of 55.5 this month from a reading of 58.7 in November, compared to expectations for a downtick to 57.6.

But the dollar remained broadly supported, as a recent string of upbeat U.S. data sparked optimism over the strength of the country’s economic recovery and added to expectations for the Federal Reserve to soon raise interest rates.

Investors continued to focus on developments in Greece, where parliament was formally dissolved on Wednesday after Prime Minister Antonis Samaras failed earlier in the week to persuade lawmakers to back his candidate for head of state, casting the country’s international bailout into doubt.

Parliamentary elections were set for January 25, almost 18 months before the current coalition’s term was due to end.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, was up 0.60% to 91.18, the highest level since December 2005.

EUR/USD hit fresh four-and-a-half year lows of 1.2009 before pulling back to 1.2028, down 0.63% for the day.

Research group Markit earlier said that the euro zone’s manufacturing PMI fell to 50.6 in December from 50.8 in November. Analysts had expected the index to remain unchanged this month.

Germany’s manufacturing PMI remained unchanged at 51.2 this month, in line with expectations, while France’s manufacturing PMI hit 47.5 in December, down from 47.9 the previous month and confounding expectations for an unchanged reading.

Also Friday, European Central Bank President Mario Draghi said the risk of deflation in the euro zone cannot be excluded, signaling the possibility of large-scale quantitative easing measures.

The pound remained near 17-month lows against the dollar, with GBP/USD down 1.11% to 1.5404.

Markit earlier reported that the U.K. manufacturing PMI slipped to 52.5 this month from a reading of 53.5 in November. Analysts had expected the index to rise to 53.6 in December.

A separate report showed that U.K. mortgage approvals rose by £59,030 in November, beating expectations for an increase of £58,530. October’s figure was revised to a £59,510 gain from a previously estimated £59,430 rise.

Elsewhere, USD/JPY rose 0.24% to 102.03, while USD/CHF gained 0.58% to 0.9991, just under a four-year peak of 0.9929 hit overnight.

The Australian dollar was still hovering near last week’s four-and-a-half year lows of 0.8084, with AUD/USD down 0.71% at 0.8122, while NZD/USD tumbled 0.90% to trade at 0.7729. Meanwhile, USD/CAD hit a five-hear peak of 1.1709 before consolidating at 1.1721, up 0.89% for the day.

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