The U.S. dollar rallied during the last few weeks, giving investors the illusion that it was a good safe-haven asset. But it seems, this high was short-lived, and the currency isn’t as firm, as some would like to believe.
Daniel Katzive, head of foreign exchange strategy for North America at BNP Paribas, noted that the Fed message yesterday was consistent with tolerance for higher inflation. That’s not good news for the dollar, because this means depressing the U.S. real rates. The soft components of GDP would point you in the direction of lower Fed policy – said Katzive.
Karl Schamotta, the chief market strategist at Cambridge Global Payments, stated that a slump in domestic demand and a sharp but unsustainable rise in exports was the reason why GDP looked relatively healthy. But this situation is actually very damaging for the U.S. economy. And it’s also not attractive to the forward-looking participants that make up the foreign exchange market. The fact is that the odds of interest rates being at 150-175 basis points in July fell from 44.3% yesterday to 37.2% today.
What caused the dollar to fell?
The American economy in 2019 posted its slowest annual growth during the last three years. On the other hand, according to news, personal consumption weakened dramatically. These were the main stimulators to end the dollar’s rally. However, as investors sold off risk assets, it has gained 0. 65% in the last two weeks. The Japanese yen also rose to 0.21%, and the Swiss franc increased to 0.36%. The Chinese yuan continues to lower, stopping at 6.990 so far.
According to news, Growth in consumer spending slowed to a 1.8% pace after rising at a brisk 3.2% rate in the third quarter. As it accounts for more than two-thirds of U.S. economic activity, analysts worry. It’s possible that the dollar will fall even more.