USD Outlook – FXWW Chatroom

USD: In view of the successes of the US economy and the strong labour market in the US 
the fundamental factors continue to support the US dollar. However, the USD too was under 
attack today as a result of the risk-off sentiment. At least against the EUR the USD was not 
the ultimate safe haven today. The logic behind it is clear: the risks in China and the turbulence 
this causes might cause the Fed to postpone its first rate step in September. To December 
at the earliest, but possibly even to early next year. The market is lowering its rate 
expectations, which is putting pressure on the US dollar (see chart). Concerns about an end 
of the cheap money from the US are no doubt contributing to the current nervousness on the 
FX market1. Even though US monetary policy would remain expansionary even after a first 
rate step. And even if the Fed was to postpone its first rate hike there is little scope for extensive 
dollar weakness. In that case other central banks would not only have to react to the 
risks emanating from China and to falling commodity prices, but also to the Fed’s hesitant 
approach – and would probably have to implement further monetary policy steps.

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