Dollar Forecast Loaded with Volatility Potential but Can It Find a Trend.
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- 09.01.2023
The US dollar has seen a number of highs and lows in the past year. The dollar is the world’s reserve currency and is used as a benchmark against which many other currencies are measured. It is also the most widely traded currency on the foreign exchange market. Since the mid-2000s, it has appreciated by more than 12% against most major currencies. Despite the dollar’s recent run up in value, many experts believe it’s in the early innings of a cyclical downturn.
While the dollar hasn’t been doing that badly lately, a variety of factors have been driving it down. For example, the UK economy is expected to continue its recession into the third quarter of 2022. At the same time, inflation is on the rise, thanks in part to higher gas prices. This combination has fed fears of an inevitable decline in real household incomes.
In the UK, the Office for Budget Responsibility has deemed the economy in a state of peril, although it hasn’t come up with a crystal ball. On the positive side, the chancellor Jeremy Hunt has outlined the need for an aggressive stance on restoring public services and growth, and the recent announcement of the largest infrastructure investment in the UK’s history should provide some much needed relief. Still, the pound has been on a downward trend, reaching a 37-year low against the Dollar on 16 September. Moreover, despite being the largest economy in Europe, the euro has been losing ground to the Dollar, due in part to Russia’s threat to cut off gas supplies to Europe.
Another factor is the Federal Reserve’s recent moves to pause its rate hike cycle. This isn’t enough to shave the dollar from its recent highs, but it’s a good sign that the Fed will pay close attention to the state of the economy. With the economy showing signs of slowing down, the central bank may take a more dovish stance in the second half of the year.
The Fed is also lowering the amount of cash it injects into the market. This is the result of tight credit conditions and the need to reassure markets that it has not forgotten about its mandate to increase the money supply to combat inflation. The Fed is also likely to take note of recent developments in the Eurozone, and will be more inclined to support its neighbors. Lastly, the US hasn’t been in a recession for quite some time, so it might be a while before it has to implement any of the major measures of austerity, such as higher taxes or reduced government spending. As a result, it might be a good idea to take advantage of the halt in interest rate hikes while it still can.
There are many factors that influence the dollar’s value, but one that stands out is its status as the reserve currency of the United States. In addition to being the official currency of the United States, the dollar is the world’s reserve currency and the most widely traded currency in the foreign exchange market. Consequently, the Federal Reserve’s monetary policy decisions have a tremendous impact on the value of the Dollar