US Dollar Steadies After Trump-Inspired Surge
The United States Dollar which has been on a sharp rally over the past couple of weeks has finally slowed down just before the Thanksgiving holidays. The currency had reached a 13-1/2-year high this Wednesday as a result of rising positive sentiment regarding President Elect Donald Trump’s effect on the economy. Mr. Trump’s many pronouncements throughout the election process have given rise to expectations that the new government will give the economy a much needed boost while also pushing up interest rates.
Donald Trump’s entirely unexpected victory over Hillary Clinton has helped the dollar index reached its highest levels since the beginning of 2003. In fact, it had risen a remarkable 3% since the election results were announced. However, the index has now shown signs of slowing down in an indication that reality is tempering expectations and the dollar was finally flat against the yen And euro as of Wednesday. The index tracks the value of the US dollar against six important currencies. In related news, value of the Chinese offshore Yuan dropped sharply in anticipation of capital fleeing.
Investors still have expectations that the Trump administration will announce a fiscal stimulus plan that will help strengthen the Dollar. Not only do they anticipate a hike in interest rates to combat inflation but they also expect a boost in infrastructure spending as well as the bringing in of profits earned in other countries.
Senior Citibank executive Richard Cochinos pointed out that the pause in the Dollar’s climb was on account of the holiday for Thanksgiving. Traders tend to reduce their exposure to a currency ahead of a long holiday. Citi’s London-based chief of G10 currency strategy was certain that investors would continue buying the dollar from Monday since the political trends in Europe pointed towards a resurgent America.
The future seems to be shaky for the euro since Italy will be going to the polls before the year end and that will be followed by elections in France and Germany. Growing nationalist sentiments in these three countries, and indeed all over Europe, might result in the euro trading lower than its present levels. It closed trade on Wednesday at $1.0616, which was not too far from the 11-month low of $1.0569 that it touched last week.
Sumitomo Mitsui Banking Corporation’s Singapore based analyst Satoshi Okagawa also pointed out that a drop in U.S. 10-year Treasury yields from last Friday’s annual high of 2.364% to 2.319% on Tuesday also contributed to slowing down the dollar’s upward movement.
The dollar was trading flat against the yen at close of trade on Tuesday. Monday’s trading activity saw the dollar touching an 8 month high at 111.36 yen although this had dropped to 111.08 yen on Tuesday after it initially touched the same level.
Forex traders are expecting a Fed hike in December, which will be continued in 2017, with a corresponding increase in orders of durable goods from the United States in order to help the dollar retain its momentum. U.S. durable goods orders had increased last month, albeit by only 0.4%, but traders are optimistic since it came on the back of a decline in September.
Unemployment claims in the country have stayed below 300,000 for an impressive 90 weeks in a row, and this too has boosted demand for the currency. It is clear to see that the election of Donald Trump to the post of the most powerful man in the world might have upset certain Americans but the overall impression is positive. Even so, it will be interesting to see how the US economy performs in the near future.