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March 17, 2016

The Dovish Fed, Where Would US Dollars Go?

The Dovish Fed, Where Would US Dollars Go?

The Fed’s statement last night sounded like a dovish tone. The Fed is believed to be in need of further confirmation if an interest rate is about to hike. One of the The Fed’s considerations is the labor market as The Fed is still waiting for the strengthening of the labor market in order to state that US economy is in line with the recovery target.

The other considerations are the inflation and the slow going growth of global economy. Will the inflation rate hit the target this year? Prior to The Fed’s rate hike last December, it was believed that 2% of inflation rate would be hardly achievable, even until 2017. However, should The Fed not rise the interest rate, risks, such as bubble asset, would come.

The global economy growth is estimated to keep going on a moderate level. The fairly low price of crude oil would still hugely contribute to it, not to mention the China economy condition. The currency war among countries such as the Europeans, China, and Japan has not brought any significant outcome to each one of them.

In such condition, where would the US Dollars go? Will it rise or will it fall? For now, the strengthening of USD could lead to the decline of US export number and it would give an impact on the employment which has become one of the concerns. On the other hand, the weakening of USD has not been on top of the The Fed ‘s to-do list. In 2015, the EURUSD was staying between the range of 1.15 and 1.05 and it is generally possible that it would stay that way. The USD and other currencies do not possess any reason to form a long term trend. At the moment, investors still have their assets on stocks and gold. The fairly low interest rate brings a big hope that the stock market would keep on going on a rally, while the generally similar conditions of economy among big countries give the investor no choice but to hold the gold instead of allocating their money on a certain currency.

Thus, is our open position in line with the ongoing trend of currency trade? In fairly small amount, yes, it is.

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