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The USD Had A Sharp Decline but is Bouncing Back

By: DailyForex

The U.S. Dollar declined sharply against major currencies on Friday after a Chinese finance minister was reported to have suggested that China consider alternate benchmark currencies rather than rely on the Dollar for its currency reserves. Despite the improbability of such actions, traders used the comments as an excuse to sell the Dollar. The Dollar fell as much as 0.9% against some currencies and was particularly weak against the Euro.

Looking ahead, the Dollar seems likely to resume its appreciation against the Yen in the week ahead. This trend is based on the view that the U.S. economy is likely to recover sooner, if not necessarily faster, than other global economies. The Japanese economy, in particular, continues to be weak.

The primary drivers of currency movement are expected to be the release of the Tankan Manufacturing Index in Japan on Tuesday and the release of non-farm payroll and unemployment information in the U.S. on Thursday. A poor Tankan report will likely lead to a decline in the Yen, while a better-than-forecast unemployment rate could produce sizeable gains for the Dollar. On the other hand, a poor result on the unemployment report would most likely cause a sell-off in the dollar, as traders will worry that the U.S. economy could be set for further declines. Traders should keep in mind that Friday will be a bank holiday in the United States.