The US Dollar Index (DXY) rose more than 0.2% early Thursday, breaking above the 100.00 mark and closing in positive territory after a three-day losing streak. The interest rate environment change Investors were doing cartwheels over the Fed’s surprise policy pivot last month, which has caused a dramatic shift in market dynamics. The dollar, meanwhile, is continuing to strengthen even against other major currencies. Market participants are anxiously awaiting a pivotal announcement regarding trade relations between the United States and United Kingdom.
The buck’s run lately on its opponents has been especially impressive. The index rose 0.55% vs the Euro. At the same time, it lost ground, albeit marginally, of 0.10% against British Pound. The Japanese Yen recorded a marginal decline of 0.16% against the dollar. The greenback managed to hit hard against the loonie, up 0.58%. It further appreciated 0.79% against the Australian Dollar. The New Zealand Dollar and Swiss Franc ranked a distant 3rd and 4th place with gains of 0.50% and 0.30%, respectively.
Federal Reserve’s Influence on Market Sentiment
The Federal Reserve’s recent policy indications have led investors to re-evaluate what they expect future interest rates to be. Following the Fed’s most recent meeting, the odds of a 25 bps rate reduction in June plummeted. Probability now lower – The CME FedWatch Tool … as likely lower down to 20%, from previous read closer to 30%.
Fed Chairman Jerome Powell emphasized the cautious approach the central bank intends to take, stating, “it’s time for them to wait before adjusting the policy.” This would be consistent with the Fed’s recognition that uncertainty around the economic outlook is rising. Most analysts interpret this as some assurance that the Fed is taking a more cautious, wait-and-see approach. They are responding to the changing economic terrain.
On Thursday, the US economic calendar kicks off with one of the most important data releases. Stay tuned each week for our Initial Jobless Claims and our Unit Labor Costs for Q1! These quarterly statements will help us better understand the real state of the labor market. Their members might influence future monetary policy choices, undercutting the overall economic wellbeing.
Upcoming Trade Announcement
Alongside the economic data, all eyes are closely watching an expected announcement by US President Donald Trump. The President has called a “big news conference” for 1400 GMT Thursday. We hear he’ll be doing the final handshake on a huge trade deal with negotiators from named country that’s really big and really famous. Though details are still limited, analysts are already speculating that this announcement could lay out the first contours of a US-UK trade pact.
Negotiations on trade agreements continue post-Brexit. As such, a strong, pragmatic outline from the Trump administration would send huge and positive signals to the economies of both countries. Investors are watchful of these progressions to see how they will influence economic connections and working environments going ahead.
Currency Market Reactions
With the USD Index showing continued strength, moves against the majors highlight changing perceptions from risk-on to risk-off, including how risk is manifested in investor behavior. The increases against the Euro and Canadian Dollar evidence a rising confidence in the US economy. At the same time, other parts of the country are providing the opposite signal.
Meanwhile, the dollar has continued to lose ground to the GBP and JPY. This would imply that though it’s stopped losing ground, traders are still somewhat optimistic on an improving basis on the performance of other economies. With heightened debate over the terms of trade agreements, including the value of currencies, this currency volatility may be increasing.