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The US dollar gained against the euro for the fourth consecutive trading day, as stronger-than-expected University of Michigan Consumer Confidence figures improved otherwise dour sentiment for the US economy. The US currency seemed destined to finish the day lower against its European counterpart, but the unexpectedly positive figures reversed a morning of dollar loses. Currency markets now question whether the dollar will continue its well-publicized downtrend, but it seems that the US Dollar index has found steady support to end the week’s currency trading.

Can the dollar stabilize against the euro in the week ahead? Let us know what you think in our DailyFX  Forex Forum EUR/USD Discussion.

The University of Michigan Consumer Confidence report beat even the most optimistic forecasts for the month of December, with a 5 point jump in the headline confidence index beating every single one of 65 economist estimates reported by Bloomberg News. University of Michigan Survey Research officials found that consumers grew far more upbeat about current economic conditions and overall outlook—undoubtedly a positive sign for domestic household spending. Given that such spending accounts for over 70 percent of US GDP, it will be critical to monitor overall confidence levels and its effects on broader spending trends. The Fed will undoubtedly watch consumer trends and clearly stand ready to cut interest rates to bolster overall consumption growth. 

Do you think that the Federal Reserve will cut by 25, 50, or 0 basis points on January 31? Have your say on the DailyFX Forex forum.

The dollar likewise saw modest support from continued losses in the Dow Jones Industrial Average, as increasingly risk-averse markets shed exposure to the risk sentiment-linked greenback. The Dow had a volatile end to the stock trading week, as the key index initially rallied nearly 200 points before completely reversing such gains and falling over 130 points from its open. When all was said and done, the DJIA recovered much of its earlier-afternoon losses and finished just 0.5 percent lower at the psychologically significant 12,100 mark. Despite the recovery, the Dow has now seen its worst three-day performance in five years. All else remaining equal, such Dow losses increase the odds of a US dollar rebound. 

Where do you think the Dow is headed? Will it help or hurt the dollar? Sound off in the DailyFX Forex forum.

Written by David Rodríguez, Currency Analyst for DailyFX.com,

Tell me what you think about this article;  e-mail drodriguez@dailyfx.com