Investors have been waiting long months for the dollar to rise, as their expectations were that a combination of good monetary policy, labor market gains and tax reform would push the dollar higher. But so far, things did not seem to go as expected.
Although Trump’s tax bill has passed easily, it has not yet been finalized, especially since it needs approval from the Senate, next week – and this may take more time as well. This has made investors skeptical of the ease of passing this law, and thus, led to a significant weakness in the strength of the dollar.
Recent economic data in the US is also weak. Durable goods orders for October released on Wednesday were below expectations, with the index failing by 1.2%, while analysts’ expectations were for an increase by 0.3%. The only gain was in shipments of core capital goods, which rose by 0.4% after the September growth of 1.2%.
On the other hand, members of the Federal Reserve council are avoiding to give any statements to the media about the monetary policy expectations. While the Council has already initiated measures to reduce the giant general budget for October, although it did not have a significant long-term impact on the return. The Fed should raise borrowing costs in December, which will reach the target range of 1.25% to 1.50%.
Last Friday, the dollar continued to lower against the rest of the major currencies, especially as market participants reacted to positive news from the euro zone and up poor trading conditions during the Thanksgiving holiday in the United States.
To conclude, we believe that the Federal Reserve’s interest rate hike will help keep investors interests buying the USD against high priced currencies such as the Australian and New Zealand dollars. Investors should be cautious about the EUR/USD pair, especially as economic conditions improve in the Eurozone, which could lead to gains for the unique European currencies in the next few months.
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