Dollar to continue its recent strength

27 April, 2018

It seems as if the market has finally woken up to the potential of the US dollar after the recent gains it racked up against most major currencies over the past week and we may see more gains as investors focus their attention on rates and higher returns.

The catalyst for the greenback’s strength has been the rise in treasury yields, which hit 3 percent for the first time in 4 years making the US dollar an attractive investment as a high yielding currency.

The second factor is the expectations that the US Federal Reserve will move more aggressively this year in raising interest rates this year which will only widen the interest rate gap difference between the US dollar and currencies such as the British pound, and the Euro.

The Euro in particular is extremely vulnerable to more losses against its US counterpart as interest rates remain at 0 which makes the latest interest rate decision from the ECB later today a make or break time for the European currency.

No changes in rates are expected from the record low of 0 percent but the following monetary statement will be closely watched by trader and if the European central bank doesn’t hint that there could be a chance of an interest rate hike or 2 this year we may see the Euro accelerate its recent losses.

'We're seeing cyclical fundamentals turn to favoring the U.S. and that is a recipe for the dollar to strengthen, and we think it continues for a while," said Ben Randol, Bank of America Merrill Lynch G-10 currency strategist.

"One thing that we've seen is relative central bank expectations, which were a catalyst for the euro higher at the beginning of the year, have reached cyclical limitations." He added.

The US dollar will likely receive a further boost on Friday with the release of GDP figures which are expected to hit the market above expectations and on the same day we will also see GDP numbers from Great Britain.

If this release fails to meet investor expectations the chances of a rate hike next month from the Bank of England will probably fall by the wayside and lead to a continuation of the downtrend for the pound we’ve recently witnessed against the greenback.


Source  
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