NEW YORK, Jan. 9 -- The U.S. dollar continued its upward trend this week as the euro tumbled to a 16-month low against the greenback, weighed down by concerns over the European debt crisis. Also, upbeat economic data helped boost the dollar.
A lot of positive job data consolidated the fact that the U.S. employment situation has truly improved. The country's Labor Department reported that the unemployment rate dropped to a three-year low of 8.5 percent in December, while nonfarm payrolls increased to 200,000.
On Thursday, the U.S. payrolls processor Automatic Data Processing Inc. reported that private sector employment climbed 325,000 in December, much stronger than expected.
Also, the department said initial jobless claims dropped by 15,000 last week to a seasonally adjusted 372,000, also beating expectations.
Besides strong job data, other economic data also convinced investors that the country's economy is improving.
The Institute for Supply Management said Tuesday its manufacturing index for December rose to a six-month high of 53.9 from 52.7 in November. Readings above 50 indicate an expansion.
The U.S. Commerce Department said factory orders in November rose 1.8 percent, boosted by strong aircraft orders. The data helped to stimulate investors' confidence in the economic recovery.
Yet the situation in Europe remains a major concern for investors. Bank shares were dumped in the European stock market this week as Spanish authorities are considering applying for loans from the International Monetary Fund and Europe's bailout fund.
Meanwhile, the composite Purchasing Managers Index for the eurozone released Wednesday rose to a three-month high of 48.3 in December. However, the figure was still in the contraction territory, suggesting a weakness of manufacturing activities in the currency bloc.
The euro dipped further against the dollar this week after a short-lived rebound on Monday. Both currencies slid to a 16-month low of 1.27 on Thursday as both the strong U.S. economic data and European debt crisis supported a strong dollar and weak euro. The euro lost 1.3 percent against the dollar this week.
The dollar index, which is widely regarded as the best gauge of its performance against a basket of six currencies, gained 1.2 percent to stand at 81.245 this week.
However, analysts warned that continuous positive U.S. economic data may raise optimism in the market, which may negatively affect the dollar. Also, as the dollar has gained relatively too much in recent trading days, investors may take profits out of the currency market, putting pressure on the dollar.