The dollar forex (USD-FX) market was strengthening on taper talk, as the USD-FX futures (ES) were trading at a premium to the spot (FX) version of the forex market. The futures (ES) prices have continued rising on this week’s market, and the (FX) prices have been declining as the US Fed hiked the pace of its USD-related rate hikes for the second quarter of 2016.
The dollar and sterling have strengthened against the dollar today as the markets reacted positively to rising US interest rates news. The US Federal Reserve yesterday announced it was hiking rates for the first time since 2006, with the move indicating that the US central bank was willing to limit its bond purchases and start normalising monetary policy. The Fed’s decision came after the US Consumer Price Index (CPI) rose 0.1 per cent in December, and its fourth quarter economic growth outlook was revised up to 2.5 per cent.
As we near the end of the FOMC tapering cycle, the dollar is rallying. The USD index is at a record low but is still trading at a premium to its true value. This is due to the recent sharp rise in the dollar, which has been triggered by increased fears of the Fed ending quantitative easing. The dollar is now outperforming most other major currencies.
- The battered dollar appreciates possible caution
- Virus varieties continue to affect GBP
- Equity markets continue to perform well
Towards the end of the week, there were signs of a recovery in the US dollar in the currency market. The currency has been weak for some time as traders have become more risk-averse. Things are starting to change, with EUR/USD and the pound remaining under pressure. The dollar index also rose above 90 points this week. The talk of a time reduction, along with the long-awaited ISM Services PMI, will also set the tone as viral options remain an issue, especially for the pound.
US dollar rises due to labor cuts and inflation concerns
The past few weeks have been dominated by the idea of an economic rollback, and although Fed Chairman Jerome Powell has resisted the idea, the conversation about it has not died down and is becoming more heated within the Fed’s ranks. The latest update came from Philadelphia Fed Chairman Harker, who echoed similar comments from other experts that it’s time to think about spending cuts. The backdrop to the dollar’s early strength is that inflation fears persist and are unlikely to abate any time soon. Today’s data will likely show the ISM Services PMI pointing in the same direction with an overvaluation. Another sign of the direction the Fed may be heading is the expiration of its corporate bond purchase program.
Sterling affected by viral uncertainty
The UK has shown a strong willingness to move forward and get back to work. This work will continue in stages, along with a well-received vaccination campaign, with the final opening scheduled for the 21st. June is planned. UK Government leader Boris Johnson denies that the date should be delayed as the UK is currently struggling with an increased number of cases of COVID-19 of the delta variety. Currency brokers have found that this is reflected in the pound. The pound is now trading below 1.42 against a rising dollar, overshadowing the significant progress made so far. The number of cases in the country is now increasing, with more than 4,000 cases in a single day recently.
Wall Street holds up despite inflation fears
Wall Street markets remained relatively stable throughout the week. The main moves here are at the expense of oil, whose price continues to rise and is now around $70 a barrel. Another key factor for the market towards the end of the week will likely be the release of US Non-Farm Payrolls. Analysts expect these figures to show an increase of 671,000 in May, well above the previous month’s surprise difference. If this figure is at target or even higher than expected, it would certainly show that the economy is picking up, but it could also further fuel fears of inflation.The dollar weakened against the Japanese yen and the euro after two days of selling pressure on Thursday, when it appeared the Federal Reserve would taper stimulus measures. The dollar was down 1.7% against the yen and 2.0% against the euro.. Read more about forex day trading and let us know what you think.
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