Analysis of the American Dollar

As of earlier today the American dollar has reached its highest point versus the yen for the past three months and is well-positioned to advance over other major currencies. Market participants expect more news later when the third-quarter growth report of the US will be published. If the data in the report shows good growth it would serve as a positive signal to the Federal Reserve regarding the state of the US economy. A possible rate hike would be back on the table (increasing the interest rates has been a topic of conversation since 2015 but due to fears of a global recession and an oil crisis became less likely in 2016). In addition, good results would stabilize the stock market. In contrast, a bad result of the report could cause a repetition of the events from July when the USD dropped after disappointing numbers from the second-quarter report. Reuters forecasts a growth of about 2.5%. This is to some extent confirmed by strong trade data issued earlier this week – a result that exceeded expectations and gave cause for speculation for an appreciating dollar. After the market open in London today the USD gained 0.1% versus the yen (105.42) and is at its highest point since the summer. This is largely due to good yields from the US Treasury as well as an increase in LIBOR, which is currently at its six-year maximum. It is interesting how some of these positive reports were formed on the expectation that there will be a rate hike. Now a rate hike is considered on the basis of said reports. This only serves to show how much the markets are influenced by the behaviour of traders. Currently analysts predict that an interest rate hike is about 75% likely to happen. The dollar’s relationship with the euro has been volatile, going up and down alternately. There will be more information about inflation rates within the eurozone next week which hopefully would decide the course for the euro one way or another.