Monday, August 22, The dollar increases compared to the other main currencies, as the current expectations for a possible U.S. rate hike before the year end gave support to the greenback.
Last Friday, the greenback stayed broadly higher against the other major currencies. Recovering a seven week decline as comments by San Francisco Federal Reserve Bank President John Williams flare up some hopes for a short term rate hike.
The index, which gauges the strong point of the dollar against a basket of six other major currencies, increases as much as 0.40% before finishing the U.S. afternoon session at 94.48, up 0.0029 on the day, on Friday. With the sudden increase, the index is on pace to end a five day series of losses. The index has plunged over 2.15 percent over the previous month and has dropped by over 4.3% since the beginning of the year.
In the past, the dollar had destabilized largely after the minutes of the Fed Reserve’s July policy meeting released on Wednesday, July 27, 2016, indicated that policymakers were still divided about the need to increase interest rates this year.
Probabilities for a short term rate hike came back in emphasis after San Francisco Federal Reserve Bank President John Williams indicated support for a September rate increase. He feels that waiting too long could be expensive for the economy.
However, In spite of Friday's increase, the dollar still ended with a weekly loss of 1.25% during inconsistent posts about the scheduling of the next U.S. rate hike.
Compared to the Yen, the greenback inched up 0.3% to end at 100.21 by after hours trading. On July 16, 2016, Tuesday, the dollar reached a low of 99.50, the lowest level since the U.K.’s decision to exit the European Union in late June. This week, the pair lost 1.1%, the 4th straight weekly weakening.
On the other hand, on Monday, gold prices were stressed in European trade, declining to a two week decline as the U.S. greenback increased during indications the Federal Reserve could increase interest rates as early as next month or in December.
Investors are now pricing in a 15% possibility of a rate hike by September., an increase from just 6 percent at the beginning of last week. Investors are now pricing in a 15% possibility of a rate hike by September. December probabilities were at approximately 52 percent, compared to the 46% on Friday.
The precious metal is delicate to move in U.S. rates, which lift the opportunity cost of holding non-yielding assets like gold, while increasing the dollar in which it is valued.
What makes the combination of USD and Gold safe, is the opposite connection of the two. Basically, you are protected from the fluctuation in an economy with the right amount invested in both the assets. When one goes down, the other will go up, pretty easy to predict that way.
Any rate hikes by the Federal Reserve this year are seen as bullish for the greenback as investors pile into the dollar in order to take advantage of on higher yields.
Conclusion: Currently we are witnessing the beginnings of a transformation. The Federal Reserve has been inflating the greenback greatly, decreasing its buying power connected to other commodities, prompting other world’s great trading nations to use other monies upon occasion.
However, the value of the greenback is going to stay strong, If the United States raises interest rates. However, if the U.S. will not increase rates, several other central banks will be ready to lower their rates so that the value of the U.S. dollar will not totally decline. If the U.S is going to stay one of the strongest countries around the world, the Federal Reserve will have to change how it thinks and acts.
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