Dollar is waiting for growth

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The chairman of the Federal Reserve Bank of Philadelphia, Patrick Harker, advocates three rate hikes in 2018 instead of two, since in his opinion, amid the backdrop of inflation advancement normalization policy can be conducted faster than expected.

“We observed some strengthening of inflation, and it made me move from expecting two increases to three,» Harker said in an interview with The Wall Street Journal, explaining his updated forecast. Last week, the FOMC members voted unanimously to raise the rate by 0.25 percentage points, to 1.50-1.75%. Their macro forecasts suggest a faster growth in the economy and consumer prices in the United States in the coming years and a lower unemployment rate compared to December projections. The main inflation rate monitored by the Fed (PCE Core) remains below the target level for more than five years. In January, this index rose by 1.5%, while in 4Q of the last year it gained 1.9%. Personal consumption accelerated to 4.0% showed recent data.  Harker has no right to vote on the decisions of Federal Open Market Committee (FOMC) of the FED.

On Thursday, gold prices fluctuate close to a weekly low after a sharp decline in the previous session, related to the acceleration of US economic growth and hopes for a breakthrough in diplomatic relations with North Korea. Greenback exchange rate moved to a sharp increase on Wednesday after the release of the report, which showed that the US economy grew by 2.9% in the fourth quarter. This significantly exceeded the preliminary estimates.

This report opened the way for a faster increase in the Fed’s interest rate this year. Last week, the US central bank raised the interest rate and kept its forecast for three interest rate increases this year. Another factor in the growth of the dollar was yesterday’s statement by China that North Korean leader Kim Jong-un expressed his readiness to denuclearise while US President Donald Trump wrote on Twitter that Kim was waiting for a meeting with him.

This development gave rise to forecasts about the approach of a breakthrough in solving the problem with North Korea’s nuclear program. The US dollar index, which shows the purchasing power of the dollar to the trade-weighted basket of six major currencies, changed insignificantly close to the maximum for the week of 89.71. On Wednesday, the dollar index rose by 0.88%. The appreciation of the dollar led to a decrease in the price of gold, which is denominated in the dollar and becomes more expensive to the holders of other currencies as the US currency appreciates. Today, investors expect the release of data on income and expenditure of individuals in the United States. This report will be carefully analyzed by investors who want to receive information about the future course of the monetary policy of the Fed.

At COMEX, silver futures fell 0.17% to $ 16.225 per troy ounce, while futures for platinum changed insignificantly to $ 940.70. Copper futures rose 0.53% to $ 3.018 a pound, recovering after a three-month low of $ 2,938, recorded on Monday. At the end of last year, copper prices peaked in four years, but have recently dropped to a minimum since December due to fears of tensions in international trade and China’s recent weak economic reports, which is the world’s largest copper consumer.

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