Forex review. The dollar rose against the background of local factors
The weakening of the US dollar stopped. The main reason for this is the reduction in geopolitical risks associated with North Korea and the fall of the destructive power of Hurricane Irma, which, contrary to all expectations, has weakened from the fifth level to the second. On this wave, a fairly oversold dollar received support also from a technical point of view because of the factor of oversold oversold.
To reduce geopolitical risks, Pyongyang’s actions played a big role, on the one hand, which did not stir up the tension by launching a new ballistic missile over the weekend, and on the other, a slightly milder project by the US on new sanctions against the DPRK, which do not provide for a full, total economic blockade.
Against the backdrop of these news, as well as the nature that “took pity” over the United States, investors had an excuse to conduct purchases of the US dollar, which, as already indicated, is at the dollar index reflecting its dynamics to major currencies, at the level of May 2016, that in its turn is a local minimum over the past year and a half.
Assessing the events of Monday and the reaction of the dollar to them, should we hope that its weakening has stopped or is it not?
In our opinion, it is still too early to talk about this. The American currency is still held hostage not only by external factors – geopolitics, but also by domestic ones, which include weak inflation and the conflict that has not disappeared in the country’s political elite between D. Trump and his opponents. This has already led to an increase in frustration with investors at the beginning of this year and caused the dollar to fall on world markets. Markets believe that the implementation of D. Trump’s economic programs is zero, and in fact they became the reason after the elective “trampoline” of the dollar, along with the sharp increase in inflation at the end of last year. Now these favorable for the dollar factors are leveled, but new and powerful have not appeared yet. There is a hope that it is the beginning of the reduction of the Fed’s balance that will become the trigger, which will gradually deploy the dollar towards growth in the currency markets. But we will wait for the results of the Fed meeting on monetary and credit policy, which will be held on September 19-20.
Today, the attention of market players will be drawn to the publication of a large package of economic data from the UK, where the most interesting, from our point of view, are the figures for consumer inflation. It is expected that it will add in both monthly and annual terms. According to the forecast, the growth of the consumer price index in August will be 0.5% against the decrease in July by 0.1%. In annual terms, the indicator is also expected to increase to 2.8% from 2.6%.
In addition, producers’ purchasing prices should also grow. If the statistics do not disappoint, then we can expect the continuation of the smooth strengthening of the British currency primarily against the euro, to which the sterling has decreased significantly since 2015, first against the backdrop of the referendum on the withdrawal of the UK from the EU, and then a strong increase in the euro on the wave of election results in France , and then the expectations of the reduction of measures to support the euro area economy from the ECB.