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Dollar Stumbles, More Losses Ahead?

By Kathy LienForexMar 15, 2019 03:51PM ET
www.investing.com/analysis/dollar-stumbles-more-losses-ahead-200398277
Dollar Stumbles, More Losses Ahead?
By Kathy Lien   |  Mar 15, 2019 03:51PM ET
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Daily FX Market Roundup March 15, 2019

Kathy Lien, Managing Director of FX Strategy for BK Asset Management

The US dollar ended the week lower against all of the major currencies on the back of softer economic data. Instead of improving, the Empire State manufacturing Index dropped to a 22-month low in March while industrial production grew less than expected. The University of Michigan Consumer Sentiment index increased but the improvement also fell short of expectations. In response, Treasury yields turned lower and the dollar headed south. The US dollar has been in an uptrend for most of the quarter but as we head into next week’s Federal Reserve meeting, investors could send the dollar lower.

No changes are expected from the US central bank but press conferences follow every meeting this year and Chairman Powell’s comments could hurt more than help the greenback. Even though there have been more improvements than deterioration in the US economy since the last central-bank meeting, the Fed is in no rush to raise interest rates. Last week, we learned that retail sales increased by only 0.2% in January as payroll growth slowed to 20K in February. The housing market has peaked with rising interest rates slowing new- and existing-home sales growth. While manufacturing- and service-sector activity recovered, the US trade deficit hit an all-time high. Most importantly, inflation is low with consumer price growth easing to 1.5% from 1.9% in February. So even if the central bank finds the uptick in confidence, wages and economic activity encouraging, low inflation gives them the flexibility to hold off tightening until there’s signs of consistent strength in the economy. When the Fed last met, the dollar plunged after they removed the reference to further gradual rate increases from the monetary policy statement. We don’t expect the dollar to crash at this upcoming meeting but we can expect Powell to reassert his “patient” approach on rates, which could be enough to encourage profit taking on long dollar positions.

One of the primary reasons why the dollar outperformed in the first quarter is relative weakness abroad but as some big uncertainties subside, money could flow back into riskier currencies and riskier assets. Britain still doesn’t have a Brexit deal but at least we know that they won’t be spinning-out without an agreement. Slower growth in China has been a big problem for the rest of the world but tax cuts could provide a big boost to the economy. The prospect of improvements could make other investments more attractive, easing demand for US dollars even as the US economy outperforms. In the long run, however, demand for the greenback should remain strong as the Fed continues to be the only major central bank to raise interest rates this year. USD/JPY is in an uptrend but if it falls back below 111, we should see a deeper slide toward 110. The Bank of Japan left interest rates unchanged last week but lowered its export and output assessment in response to terrible trade numbers.

Dollar Stumbles, More Losses Ahead?
 
Dollar Stumbles, More Losses Ahead?

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Oqtay Qadashov
Oqtay Qadashov Mar 18, 2019 3:54PM ET
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Kathy Lein
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Hansol Lee
Hansol Lee Mar 18, 2019 7:15AM ET
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Kathy is the best
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aji koo
aji koo Mar 18, 2019 7:14AM ET
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dollar down.. buy gold..."winter is coming "
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James Matulu
James Matulu Mar 18, 2019 3:40AM ET
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thank you Kathy
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Ellon Lon
Ellon Lon Mar 17, 2019 10:12PM ET
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thank you
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Bằng Nguyễn
Bằng Nguyễn Mar 17, 2019 10:09PM ET
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Thank You!
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Shamraj Karuppiah
Shamraj Karuppiah Mar 16, 2019 5:36AM ET
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Once again thank you Kathy. I always look forward gathering insight from your article
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Elnan Ogando
Elnan Ogando Mar 15, 2019 7:10PM ET
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Hi to you...
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Tony Montana
TonyMontana Mar 15, 2019 5:32PM ET
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22 trillion 125 billion AMERICA debt crisis
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