USD’s Potential Growth Is Limited
FxPro Financial Services Ltd | Jul 18, 2018 11:03AM ET
Powell’s speech with the semiannual report in the U.S. Congress contained an optimistic view on the economic outlook. Such a tone has reduced fears that trade wars will negatively affect economic valuations. The Fed’s confidence that the years ahead of low unemployment and sustained growth have increased the demand for stock-market risk.
As a result, S&P 500 has overcome the downturn of the previous two trading sessions and has updated the highs since February, rising by 0.6%. The credibility of the Fed’s forecasts is an important factor for markets. The optimism in the estimates supports the stock indices. In the morning, the Asian platforms have picked up the relay, also adding about 0.6%-1.0%.
Powell’s speech also helped U.S. currency. The dollar index has added 0.5% on comments that the Fed intends to raise rates regularly further. As a result, the Dollar index returned to the area of the trading range highs for the last year. The EUR/USD pair fell to 1.1650 to start of the Wednesday, USD/JPY has reached 113 – the highest level for the last six months.
It should be noted that the simultaneous growth of the dollar and American stocks is quite rare and short-term phenomenon. Strengthening of the dollar reduces the competitiveness of American companies and it is often caused by a tighter monetary policy that harms equities. However, this time it is still more likely that markets will continue to grow, while USD will lose its momentum.
Tariffs and strengthened markets over the last year along with oil spurred inflation, which undermines the real value of the dollar. A recent update of IMF projections has highlighted the trend toward accelerating growth in emerging economies and slowing in the developed. The impressive US trade deficit is alarming, which also negatively affects the currency exchange rate. It should also be noted that the Fed’s plans for 4 increases this year were confirmed by yesterday’s speech but had already been taken into account by the markets. Under these conditions, the dollar again could go on the offensive, as it was in the 2000s, when the dollar retreated to most currencies.
Get The News You Want
From the technical perspective, strengthening of the dollar in the area of current highs, near 95 on the index DXY. In November of last year, and also in May-June of this year, we saw increased pressure on the American currency. This area of resistance can act again as a serious obstacle if new drivers for the dollar do not appear.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.