The dollar leaped higher on Wednesday and could continue to outperform other major currencies after a slew of optimistic US data indicated that the world's largest economy was on a steady path to recovery. The greenback was on pace for its biggest one-day gain against the yen in more than three months and more than two weeks against the euro.
The ADP Employer Services report, which showed US private employers added 297,000 jobs in December, further propelled an already rising dollar. The ADP number was the largest increase on record, with data going back to 2000, and far exceeded market expectations for a gain of 100,000.
It has so far been a banner week for the dollar as upbeat US economic data and worries about the ability of certain eurozone countries to sell an abundance of debt worked in favour of the greenback. In early afternoon New York trading, the dollar index, which measures the greenback's value against six other major currencies, was up 0.93 percent at 80.180. The dollar surged 1.4 percent against the yen to 83.21 yen.
The euro fell 1.1 percent to $1.3157, touching the barrier at $1.3125 with a reportedly $15-$20 million payout. Traders said the seller of the option, who is on the hook for the payout, has bought a substantial amount of euros to try to keep it above $1.3125.
Traders are now focused on taking out an exotic option barrier at $1.3125 in euro/dollar, a bet that the eurozone single currency will not fall below that level by 10 am EST (1500 GMT) on Thursday. Consequently, there has been some buying of the euro in efforts to defend that number. Wilkinson said he expects the euro to fall below $1.30 by the end of the month.
US Treasuries' prices plunged. Rising yields tend to support the dollar as they reflect stronger growth. They also enhance the attractiveness of some dollar-denominated assets to investors.
A separate report showing the U.S services sector expanded as well in December also lifted the dollar. "If, in fact, employment is kicking in, then that would set the tone for self-sustained growth, underpin interest rates, and very much underpin the dollar," said Bob Sinche, global head of FX strategy at RBS Global Banking and Markets in Stamford, Connecticut. Analysts said the private sector employment report bodes well for Friday's US nonfarm payrolls number, which is expected to show gains of 175,000 overall jobs - and 180,000 private-sector jobs - last month.
Earlier this week US factory orders, construction spending and a manufacturing index showed stronger readings as well. One of those support levels is the 200-day moving average just below $1.31, which has staunchly supported the euro over the last two weeks and its breach could signal further selling.