The US dollar eased against its rivals in Tuesday’s trading session, although it still remained in sight of an almost 14-year peak.
The greenback was buoyed by fueled hopes for an interest rate hike in December and increased fiscal spending under a Trump administration. Investors have priced in 80% chance of a rate increase at the Federal Reserve’s December meeting. The recovery of bond yields, especially on the 2-year and 10-year, has also strengthened market belief that the Fed rate hike may happen next month.
Expectations for higher rates naturally lift the dollar by making it more appealing to yield-seeking investors.
Strong dollar under Trump
Several investors believe that president-elect Donald Trump's campaign promises to spur fiscal spending, slash taxes and loosen financial regulation will result to a recovery in economic growth and inflation.
In turn, faster growth and inflation would also trigger the US central bank to tighten monetary policy in a much faster rate than had previously been forecasted.
As of writing, the US dollar index—the gage of the greenback’s strength against six major currencies, pulled back 0.21% to 99.82. Previously on Monday, the index hit highs of 100.24, a level not seen since December 2015. Should it surge above the levels of 100.51 touched in December 2015, the US dollar index would have reached its highest since April 2003.
As said, the US dollar pulled back from highs although remaining in the vicinity of touching a 14-year high. This is the third attempt of the index to get past the 100.51 levels since 2015. The currency extended losses in overnight trading; marking the end of an impressive rally prompted after Republican candidate Donald Trump was declared the 45th President of the USA.
After testing 100.22 on Monday, the dollar index resumed to levels 99.66 as investors found no reason to push the greenback higher. The index hit an intraday high of 100.00 and 99.46 as of 10:58 GMT on Tuesday.
The firming of the US currency can be viewed as a rather positive response since in the end, the dollar rally has been mostly based on assumptions that the new US presidency would boost inflation, forcing the Fed to hasten the pace of monetary tightening.
However, nothing has changed for now and it will definitely take time to see the initial effects of Trump’s policies. For now, US retail sales figures will be the highlight of the day. Predictions are displaying a 0.5% and 0.6% gain on the core and headline numbers respectively.
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