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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