Investors Hope For US Rate Hike
The US dollar ended its recent gains on Tuesday as investors questioned whether the US would raise rates later in the year. Many forex investors are concerned that recent improvements in the US economy could justify a rate hike. Hopes that the worst of the credit crunch are over were raised after the US Treasury said that 10 of America’s biggest banks will be able to pay back $68 billion in bailout money received at the height of the credit crunch.
Traders Expect Weak Dollar Trend
The euro to dollar exchange rate rose to over $1.40 while the pound to dollar rate rose 1.4 percent to $1.6268. Some forex traders expect the dollar’s performance to be weak for the next few weeks. Michael Woolfolk of The Bank of New York-Mellon said, “I fully expect the dollar to trend weaker over the next several weeks unless big problems in Europe develop.” Recent US job figures boosted the dollar in recent trading sessions but investors remain concerned that the US may not raise rates.
Euro Zone Economy Still Weak
The pound to dollar rate was affected by better than expected UK housing data and a lull in recent political turmoil helped bolster the pound in currency markets. The euro to dollar rate was pressured by a sharp decline in German production suggesting that the euro zone economy is still weak. The euro was helped by hopes that Latvia may be able to avoid devaluing its currency. It has been estimated that Latvia’s economy may contract 18% this year.
US Deterioration Slowing
Investors remained wary of the dollar due to rate concerns. Jeremy Stretch of Rabobank in London stated, “Yes, the deterioration in U.S. data has slowed, but to suggest … the Fed is looking to take back some monetary easing before year-end is somewhat injudicious. It’s safe to say that market is getting ahead of itself.” Investors are waiting for the results of the US Treasury’s auction of 10 and 30 year notes to gauge rate expectations.
Markets have not reacted to the conservative sweep of EU elections but many experts expect currency exchange rates to be affected by expected shifts in policies.
