One area of concern for US dollar holders remains the dramatic change in stance from the US Federal Reserve (Fed). Last year, the Fed raised interest rates from 1.5% to 2.5% which helped the greenback pin sterling back below the 1.25 mark in the summer. The market expectation, even through the back end of last year, was for the Fed to continue on its aggressive rate rises, drawing plenty of appetite for the dollar.
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Now however, the landscape seems to have shifted, leaving many investors to question their positions which has allowed most of the dollar’s currency counterparts to regain considerable ground.
Global trade tensions can certainly be blamed for this, however recent economic data has also planted plenty of seeds of doubt. Yesterday’s report from the Labor department was no different, with the consumer price index rising by just 1.5% year on year, its slowest pace since 2016. A severe economic slowdown could be argued on the back of this and the release certainly justifies the Federal Reserve’s cautious stance regarding its monetary policy, effectively dampening investor appetite for the dollar and ultimately making it cheaper to buy.
On the flip side to this, it is worth noting that inflation levels did rise for the first time in 4 months and although the overall reading may have been taken negatively by investors this might well prove to be signal of a change in trend.
Furthermore, another anchor on dollar exchange rates could be found in the ongoing enquiry into President Trump’s impeachment.
There has been a lot of pressure from Democrats, who control the House of Representatives and will ultimately be responsible for starting the impeachment process, to dig deeper into the president’s controversial victory campaign back in 2016.
It does seem however that the markets believe that time is against them, with any real push becoming less and less likely as we edge closer to the 2020 election campaign, effectively relieving the dollar of political uncertainty as the year goes on.
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