Good day forex traders.
In recent days we need a gradual strengthening of the US dollar. While no one can predict whats going to happen in the future. Understanding the situation is nonetheless crucial so that we know the various expectations.
This article provides a good overview.
“One notable feature of currency markets in the past two years has been the relatively narrow trading range for the euro-dollar rate.
It has been generally confined to a $1.04-$1.16 trading band since early 2015. One of the reasons for this is that the expected series of rate hikes by the US Federal Reserve over the course of 2015/16 did not materialise.
Meanwhile, the ECB has pursued a very loose monetary stance in the past two years. As a result, with both US and eurozone rates staying very low, the EUR/USD pair has been quite range bound.
The dollar, though, did move higher against the euro and other currencies in the closing months of last year. Growing expectations that the Fed would implement a number of rate hikes boosted the US currency.
Furthermore, Donald Trump’s unexpected victory in November’s Presidential election also saw markets price in a more aggressive path for Fed rate hikes over the next three years.
The dollar hit 14-year highs on a trade-weighted basis in late 2016/early 2017.
This also saw the euro drop to 14-year lows against the dollar below $1.04 at the turn of the year, having traded in a $1.12-$1.15 range earlier in the year.
The euro, though, has regained some ground against the dollar in the opening months of this year, rising above $1.08 at one stage, despite a further rate hike from the Fed in March.
A more significant change, though, has been in regard to expectations around ECB policy, with markets now anticipating that the ECB could begin moving rates higher next year.
Meanwhile in the US, markets are growing somewhat impatient with the slowness of the Trump administration in getting started on implementing its planned expansionary fiscal policies.
Indeed, there are doubts about how much of his fiscal agenda resident Trump will be able to implement. This has not helped the dollar.
Overall though, the fact that the Fed appears to have moved onto a steady rate tightening path should help underpin the US currency.
However, it would seem that markets will need to see progress on the implementation of President Trump’s fiscal agenda, as well as further hikes in US interest rates, for the dollar rally to be re-ignited.”
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Do practice proper money management at all tImes. Happy trading!