US Dollar Remains Fortified by Supportive Fed Policy
USD Price, News and Technical Analysis
- Independent Federal Reserve will keep on raising rates.
- PBOC weakens the Yuan – post-Trump commentary – by 0.9% versus the US Dollar.
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US Dollar Uptrend Remains Intact but Momentum May Slow
US President Donald Trump’s latest outburst puts him at loggerheads with the Federal Reserve, and this is one battle he is unlikely to win. The President said that he was ‘not thrilled’ that interest rates were rising but at the same time he was letting the Fed ‘do what they feel best’. The dollar turned immediately lower, after racking up strong gains on the day, but the downturn was minimal with the US Dollar Basket (DXY) just under 05, while US 2-year Treasury yields (2.595%) remain around 4 basis points off a decade high.
President Trump also complained that the Chinese Yuan’was dropping like a stone’ putting the US at a disadvantage. The Yuan has weakened by around 9% since Trump instigated a trade war with China, and the PBOC weakened the Yuan further after President Trump’s comments by 0.9%, the most since mid-2016.
The market is carefully watching the recent depreciation of the Yuan, fearful that it may spark an all-out currency war with the US, alongside the ongoing trade spat.
USDJPY Rattled but Trend Remains
The Japanese Yen is the goto ‘risk-off’ asset currently, along with the Swiss Franc, and should have appreciated sharply on both President Trump’s commentary and the PBOC’s Yuan depreciation. However the move in USDJPY was just over 100 basis points and the pair closed the session mid-market, not a usual risk-off trading move. The pair currently trade around 112.400, just off yesterday’s six-month high print at 113.178. While President Trump may want to see the USD lower, the independent Federal Reserve will continue to raise interest rates to curb high inflation. The US economy is expected to reveal annualized second-quarter growth of 3.8% next Friday, up from 2% in Q1, while unemployment in the US is at its lowest levels in four decades.
USDJPY Daily Price Chart (September 2017 – July 20, 2018)
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--- Written by Nick Cawley, Analyst
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.