He global dollar fell this Thursday as traders digested a series of mixed economic data in USA to assess the prospects for interest rate cuts from the Federal Reserve (Fed) this year, despite the imminent return of donald trump to the White Housewhich has led investors to consider a long period of strength for the US currency.
He dollar indexwhich measures the greenback against six similar currencies, closed down 0.1%, although it has risen almost 10% from its late September lows to a high in more than two years, Reuters reported.
United States economic data
The retail sales in the United States rose 0.4% last month after upward revisions the previous month, data from the Commerce Department’s Census Bureau showed.
Meanwhile, the number of Americans who filed new claims for benefits unemployment rose more than expected last week, but remained at levels that show a healthy labor market.
The business index of the Philadelphia Federal Reserve, which rose to 44.3 in January, was the only surprise, as the forecast was for a reading of minus 5.
“I think retail sales really didn’t have a significant impact,” he said Vassili Serebriakov, currency strategist at UBS Investment Bank.
“The CPI had an initial impact in terms of weakening the dollar, but that was quickly reversed. And I think that just indicates that the market is still heavily inclined to buy dollars on dips, probably in anticipation of the inauguration next week and the potentially dollar-friendly policies of the incoming Trump administration, including the possibility of tariff increases relatively quickly.”
Trump’s inauguration stops betting
According to investors, Donald Trump’s presidential inauguration on Monday is one of the main reasons holding back dollar bears awaiting clarity on his tariff policy.
The market got a taste of how sensitive the dollar can be to tariff-related news on Jan. 6, when the dollar index fell about 1% following a report from The Washington Post suggesting that Trump’s advisers were considering plans limited tariffs. He quickly recovered after the president-elect denied the story.
“People are waiting for at least those major policy announcements to be made to close positions,” said Thierry Wizman, global currency and interest rates strategist at Macquarie.
On Monday, the strategists of Goldman Sachswhich forecast the dollar would rise another 5% this year, said it could rise even further if the U.S. economy continues to outperform the Fed despite higher tariffs, and markets start pricing in possible rate hikes instead of cuts. .
The Fed and the rate dilemma in the new Trump era
Trump’s government plan, which includes aggressive tariffs and deportation of some immigrantshas already raised concerns among policymakers about inflation, minutes from the Federal Reserve’s December meeting show. “There has been a pretty obvious shift in the Fed’s tone toward a more hawkish stance,” said Macquarie’s Wizman.
The situation of the US treasury bonds and its performance is also under attention. “The United States is outperforming both in terms of high returns and better growth,” said Aaron Hurd, senior currency portfolio manager at State Street Global Advisors.
Treasury yields have risen in recent weeks, with the US 10-year bond yield rising to a 14-month high on strong economic data and expectations that the Federal Reserve could be ending the rate cuts as it prepares for the implementation of Trump policies.
While Hurd is positioned for dollar weakness in the three- to five-year time frame, he doesn’t rule out further near-term gains for the U.S. currency.
Source: Ambito
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