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US Dollar Index Hits 12-Year High as ECB Unveils €1 Trillion Stimulus

Key Takeaways:

  • US dollar index climbs to 94.19, its highest level in 12 years.
  • EURUSD falls to 1.1366, its lowest level in 11 years.
  • Spot gold rises past $1,300 an ounce, a 5-month high.

The US dollar surged against a basket of currencies on Thursday, as the EURUSD fell to a fresh 11-year low after the European Central Bank unveiled a €1 trillion stimulus package designed to unlock the credit markets.

The US dollar index, a weighted average of the US dollar’s performance against a basket of trade partners’ currencies, rose 1.39 percent to 94.19, its highest level in 12 years.

The US dollar index has surged 18 percent since July 1. The unprecedented run was triggered by bigger bets the Federal Reserve would unwind its record stimulus program in the fall, paving the way for a rate hike shortly thereafter. The Fed ended its record bond-buying program in October and is expected to begin lifting interest rates by midyear.  According to Fed officials, interest rates will rise to 1.125 percent by the end of 2015.

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In economic data, US jobless claims declined 10,000 to 307,000 in the week ending January 17, the Labor Department reported Thursday in Washington. Upbeat home sales and PMI data on Friday could help solidify the dollar’s gains heading into the weekend.

The dollar received a boost on Thursday after the European Central Bank announced the details of its highly-anticipated quantitative easing program. Highlighting its growing divergence with the United States Federal Reserve, the ECB said it would begin purchasing €60 billion worth of government bonds each month, lasting until at least September 2016.  The central bank’s target for the overnight rate was left at a record low of 0.05 percent.

The EURUSD plummeted more than 250 pips to 1.1366, its lowest level since 2003. The pair is expected to find its bottom below 1.10, as the dollar bulls continue to aim higher.

The ECB’s open-ended stimulus package also helped lift other risk-off assets, including gold. Spot gold traded at five-month highs, rising above $1,300 an ounce.

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