US Dollar Pushes Strongly As The Market Gears Up For Federal Reserve Rate Cut
The U.S. is off to a strong start on Monday with the price closing into its 2-month high. The strong price movement could be tied to the rate cut expectations.
It is, therefore, a major week for the Federal Reserve because it will be the first interest rate cut in the U.S. since the financial crisis. The dollar may also have grown stronger on the heels of positive US GDP growth in the second quarter. The US dollar has also demonstrated significant gains against the British Pound over the past few days as Brexit concerns continue to hammer down on the Pound’s performance.
Most of the major currencies have been demonstrating small movements before the Federal Reserve's 25 basis point cut which is expected to be announced on Wednesday. The USD’s strong gains against the Pound are evident in the GPB/USD charts with the price demonstrating a strong bearish trend since Sunday.
Meanwhile, the Euro has been gaining strength against the US dollar on Monday after suffering significant losses last week over looming Brexit concerns. The EUR/USD traded at 1.1128 at the time of this press. This week is critical for the U.S. dollar's performance after the Federal Reserve's policy change.
The current outlook across the pond
The past few weeks have been quite unforgiving to the Euro, especially with pro-Brexit politician Boris Johnson being selected as Britain’s new Prime Minister.
Analysts predicted that the GBP will continue to drop in value and that it will likely approach the $1 mark during Johnson’s tenure. The GBP dropped by 0.3% after Dominic Raab, the new Foreign Minister of Britain criticized the European Union for being stubborn and not focusing on achieving a good Brexit deal.
In his statement, the British Minister stated that his country is in pursuit of a good deal with the E.U. He also added that the U.K. should prepare for a no-deal Brexit in November if the E.U. maintains its stubbornness. The statement also came after comments by other U.K. minister who revealed that the U.K. government currently assumes that the E.U. will not negotiate a deal.
A recent opinion poll revealed that the Conservatives, who are led by the current Prime Minister Boris, already have a 10-point lead against the Labor party. Many also believe that Johnson will push for an early election.
As for the situation in the U.S, analysts are curious whether the country is approaching a complete rate-cut cycle. Also worth noting is that the GBD numbers were better than anticipated, thus countering the idea that the U.S. might be headed towards a long easing cycle.
The US GDP grew by 2.1% in Q2, which was higher than the 1.8% estimate, and the better than expected performance was mainly due to strong consumer spending. It managed to balance out some of the declining exports figures and underwhelming inventory.
The US dollar was also aided by Larry Kudlow, the White House Economic Adviser. He stated that Trump’s administration is no longer planning to intervene in the markets to lower the value of the dollar.