Dollar fights back as Fed stays on track with rate increase
The dollar has been subjected to volatile trading over the past 24 hours with a sharp reversal in trends. The US retail sales data was weaker than expected with both the headline and underlying data recording a 0.3% decline for May, maintaining the recent subdued tone.
The CPI reading was lower than expected with a headline decline of 0.1% for May while the core increase was held at 0.1%. The year-on-year inflation rate was below the Fed’s target of 2.0%.
The data overall increased doubts surrounding US growth and raised fresh doubts over inflation trends. The immediate assessment was that weaker growth and inflation data would make it more difficult for the Federal Reserve to keep raising interest rates. Given the importance of yields on currency rates, the dollar overall weakened sharply to 7-month lows. It might be a good idea these these kinds of decreases send money to the US and take advantage of the low USD.
Following its latest meeting, the Federal Reserve increased interest rates by a further 0.25% to 1.00-1.25% range which was in line with consensus forecasts and the second rate hike of 2017.
The Fed remained generally confident surrounding the outlook and the projections from individual members of the committee suggested that there would be at least one further rate increase this year.
Fed Chair Yellen was also confident that recent weakness in the inflation data was due to temporary factors and she expected inflation to rise. She also expected interest rates to rise further.
The statement and Yellen’s press conference provided reassurance that the US economy is still on track and the dollar regained support. The US Federal Reserve is also still the only major global central bank which is tightening monetary policy.
After hitting 7-month highs near 1.1300, EUR/USD retreated to lows below 1.1200 while USD/JPY recovered to 109.60 from 5-week lows below 109.00. In European trading on Thursday, the dollar overall was at a stronger level than before Wednesday’s data releases.
Read more about us, our authors and contact us on our About Us page
Information expressed in this article and on MoneyTransferComparison.com as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.