Dollar suffers rout as Fed hints doubt on hikes


The U.S. Dollar is trading in negative territory all across the board following a Fed announcement and press conference that established a more dovish Federal Reserve stance on monetary tightening into 2019.


While Fed Chairman Jerome spoke about the need for economic growth to pick up, markets digested then removal of the Fed’s language discussing the need for “gradual interest rate increments.”

Clearly, global equities feel this is an accommodative approach, which they welcome as they are having their best monthly performance since March 2016. The MSCI Emerging Market Index also up by the most in four months, boosting all currencies against the buck by over half a percent on average.

January turned out to be a negative month for the greenback as we estimated. The return to risk-appetite based on the idea that interest rates will stay low around the world and that trade issues can go towards solutions is manifesting. Nevertheless, there are ongoing situations and political pressures elsewhere that could make the buck seem a safe-haven again, but currently, the optimism behind slower, yet ongoing economic growth and adjustments that will feed into the long-term have turned the tables.

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The Euro could only muster a 1.0% gain in January over the greenback, but at least its return to gains goes along with our narrative of gradual improvement for the shared currency this year. Gross Domestic Product figures for the fourth quarter and 2018 average revealed the expansion expected at 0.2% and 1.2% respectively. Trade concerns must be quelled and contraction in sectors such as Industrial Production must be avoided if indeed the Euro is to keep its resurgence.


The Pound hit the brakes after the Parliamentary session on Tuesday that witnessed a return to Brexit uncertainty. Sterling managed to be the second best performer amongst the major currencies, only second in strengthening to the South African Rand, a beneficiary of commodities rising. The 3.8% climb is the result of traders feeling a deal will be made no matter when the EU and U.K. completely separate.

Ideas of customs union permanence and the re-negotiating of the backstop to the backstop on border control do not matter. Eventually the government will want to wash its hands from a process that already the EU says has gone on for too long and that they have conceded all they could. A second referendum will likely come, but it will not be as soon as maybe most analysts think.