U.S. Dollar: Will It Increase Until Midyear?

March 1, 2014

The US will continue to unleash its bond-buying program, while Europe could cut rates again in the coming months. The US dollar should rise against major currencies until the middle of the year.

US: Tightening continues

After January and February, the Fed will proceed with its tapering program for an undefined period of time. The announcement was also confirmed by Mr. Williams, the president of the Federal Reserve of San Francisco, who is considered a dove. Ms. Yellen said during the Senate Banking Committee hearing on Thursday that the Fed is watching economic data very closely. In reality, the latest economic data has been tepid in the US. As an example, in January, industrial production declined 0.3%, while manufacturing slumped 0.8%. The deterioration is confirmed by the manufacturing survey from the Federal Reserve banks of New York and Philadelphia. Jointly, the two indexes lost almost three points from January to February. Nonetheless, the employment component stayed strong at 54.2. Perhaps, it is anticipating a rebound in the coming months. In effect, the bad weather might have played a role in the latest economic slowdown. Housing starts fell 16% in December and are now at the lowest level since 2011 on the year-to-year basis.

Source: PIMCO

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