Flows and sentiment lift dollar towards one-year highs

July 18, 2018

~~New York (July 18)  The dollar rose towards a one-year high on Wednesday in the wake of bullish comments from U.S. Federal Reserve Chairman Jerome Powell about the strength of the U.S. economy.

Though Powell did not alter future expectations of U.S. monetary policy, traders saw his comments as signifying that authorities were comfortable with the greenback’s near 6 percent rise against its rivals in the last three months.

In his congressional testimony on Tuesday, Powell said he believed the United States was on course for years more of steady growth, and he played down the risks to the U.S. economy of an escalating trade conflict.

“The recent dollar moves has been a bit baffling and the only reason may be short term flows and sentiment are supporting the greenback,” said Richard Falkenhall, a senior currency strategist at SEB in Stockholm.

Against a basket of its rivals .DXY, the dollar edged 0.3 percent higher at 95.40, nearing a one-year peak of 95.50 hit in late June.

The greenback reserved most of its gains against the relatively higher-yielding currencies such as the Australian dollar AUD=D3 and the kiwi NZD=D3 against which it rallied half a percent each.

Though concerns the U.S. economy may be nearing a peak as evident from a flattening yield curve and falling inflation adjusted-yields, the widening rate differentials between the U.S. and other major markets also lifted the greenback.

“We are back in a conventional world where monetary policy divergence is in play and monetary policy supports the dollar,” said Adam Cole, chief currencies strategist at RBC.


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