The US dollar is under constant threat. It is currently trading just below parity with the Euro as investors navigate volatile economic indicators and uncertainty surrounding the political landscape. The EUR/USD pair today trades around 1.15. While this movement is unprecedented, it nonetheless tracks the recent historic fluctuation range that has been stuck between 1.10 and 1.16. Even with the US dollar holding much more lucrative interest rates, recent market activity points to a tempestuous storm for the world’s reserve currency.
President Trump’s trade policies have made investors more leery, especially for those who invest in US government debt securities. His combative style and uncertain, ever-shifting agenda have created an atmosphere of confusion — just ask our nation’s CEOs — about where the economy is headed. Political turmoil has created uncertainty around the US dollar. This uncertainty is weighing on its prospects in the foreign exchange market.
In recent months, the US dollar has been under mounting pressures. The market’s mood has turned on a dime, though. The dollar is still a strong contender given the high interest rates relative to other currencies. The yield on the US 10-year Treasury note has fallen smartly since its recent high of 4.60%. It’s currently priced in at around 4.40%. This decline is important because it indicates deeper worries about economic stability and drives investor confidence.
A further important factor in influencing market perceptions has been the recent consumer inflation data coming out in the United States. The report was a disappointment, especially given analysts’ lofty expectations. This has fueled new hopes that the Federal Reserve will begin cutting rates before the year is out. Speculation adds uncertainty to the prospect for the US dollar. As interest rates go down, TIPS becomes less attractive to yield-seeking investors.
The S&P barometer index is closing in on 6070, at or near all time historical highs. This performance bodes well, as there is great underlying strength beneath the surface in the equity markets. It still does not get to the heart of the currency dynamics in play. As the index gets close to these highs, some bulls are already getting tentative. They’re paying close attention to changing economic indicators and political developments that may influence the trends going forward.
The EUR/USD pair maintains its position within a range of fluctuation, making significant upward movement toward levels above 1.17 or 1.18 increasingly difficult. Market analysts have noted that it’s important to break through these significant resistance levels. Making this transition happen will take a huge economic fundamental or a monumental shift in investor sentiment.