USD Higher As Fed and ECB Comments Boost Currency

The dollar rose to its highest in more than a week on Wednesday on outlooks for U.S. and European interest rates and as investors saw the selloff on U.S. President Donald Trump’s healthcare setback as overdone.

Reuters reported European Central Bank policymakers were wary of changing their policy message after tweaks this month upset investors and raised chances of a surge in borrowing costs. The euro fell to $1.0741 following the report, its lowest since March 21. That propelled the dollar index , which tracks the greenback against a basket of rival currencies, to 100.130, its highest since March 21.

The dollar also got a boost from Chicago Fed President Charles Evans, who said he was in line with most of his colleagues in supporting further rate hikes this year. Evans is known as one of the Fed’s most consistent supporters of low interest rates. The dollar fell to its lowest in four months on Friday after the U.S. House of Representatives pulled a bill to rewrite the American healthcare system backed by President Donald Trump. Investors saw it as an indication Trump was likely to have difficulty with other parts of his agenda including tax reform and fiscal spending that are likely to increase U.S. inflation.

Those fears may have been overdone, analysts said, and with Fed officials still lining up to support further interest rate hikes, the dollar is on solid footing.

“The selloff in the dollar that we saw in reaction to the news Friday was probably a bit of an overreaction,” said Shaun Osborne, currency strategist at Scotia Capital in Toronto. “The underlying faith in the reflation trade is coming back a little bit today.”

via Kitco

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza