The American currency seems to be strengthening again since the beginning of this year. Since January, the US dollar index has gained almost 3 percent, approaching the highs of September 2019 and the round level of 100 points. This area previously successfully stopped the dollar rally, will it be this time too?
The American currency recently seems to be gaining after the outbreak of the coronavirus which increased demand for safe assets, and also because of quite good prospects for the US economy as opposed to the European economy, which could have led to the weakening of the euro, and as a result, the dollar gained on value. Data from the US labor market or inflation and GDP data indicate a very good condition of the world's largest economy, which at the moment is unmatched in terms of macroeconomic data releases, which were better than market expectations.
Meanwhile, in Europe, industrial production in Germany recorded the largest decline since December since the 2009 recession. Moreover, industrial production in Italy was also significantly worse than expected in December, falling by 2.7 percent on a monthly basis.
Thus, the discrepancy in macroeconomic data, as well as the return of capital to USD from emerging markets, seems to explain the strength of the US currency recently. Today for USD the speech of Fed President Jerome Powell may be important. It is possible that Powell may sound optimistic about the outlook for US economic growth even despite the threat from China. Fed Chair Powell Testimony will begin at 16:00.
Last week, a Fed report appeared in Congress, in which it was repeated that according to the central bank the current interest rate range of 1.5 to 1.75 percent is appropriate to maintain stable economic growth. therefore, any mention of a possible interest rate cut could be a potential surprise for the market and the dollar.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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