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Dollar back on the rise after Federal Reserve comments

The Chair of the USA’s central bank has told a key Congressional committee that he believes the American economy has a lot to look forward to – leading to a rally for the dollar in the forex markets.

Jerome Powell, who runs the Federal Reserve, wrote to the Senate Banking Committee to say that he expected to see strong showings on a variety of American economic growth indicators in the future.

“With appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years,” he predicted.

He also said that he believes the ongoing trade issues between America and China, which have seen each country levy tariffs worth more than $30bn on each other, won’t have a significant negative impact on the US.

As a result of his enthusiasm, the USD/JPY pair, which has not been known for its strong performance in recent months, went above the 113 mark yesterday, which took it to a new six-month peak.

Elsewhere on the horizon, in Wednesday’s session a number of significant data releases around the world are expected to be made.

In the US, information on the stockpile levels of American crude oil will be released by the Energy Information Administration. Although this is usually sent out weekly, this week’s release is likely to be particularly important given the high position oil has occupied in the news agenda over the last few weeks, especially given the potential impact of re-invigorated Iranian and Libyan production.

There will also be a release covering the latest data on American housebuilding today, which will be watched with interest by forex traders looking for indicators of how well this predictive industry is performing.

The Federal Reserve will also release its Beige Book – a summary of how the economy is performing – compiled by speaking to officials in each Federal Reserve district across the nation. This publication will be the fifth of the year, and it will be followed by further releases in September, October and December.

Looking to Europe, the main statistical release focus today is likely to be on the British consumer price index (CPI). It is believed by analysts that the final figure will be 2.6% growth year on year, which is somewhat higher than the previous figure of 2.4%.

Across the Channel, a further European release covering the same metric will come out today. It is believed that this will simply rubber stamp an earlier flash reading of 1% when annualised.

In terms of political developments in Europe, the potential impact of Brexit on the forex markets is beginning to temporarily recede after British Prime Minister Theresa May held on to her role after a week of tough votes in Parliament on her negotiating strategy.

Looking ahead, the British Parliament will close for its summer break on Tuesday of next week, providing May with some breathing space, and reducing the possibility that the markets will experience any Brexit-related instability for some time.

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