Heading into the Christmas holiday, the US dollar appears to still be running pretty strong, only down about a half a percent after this month’s US Federal Reserve meeting after several months of highs. While there is a bit of second-tier data yet to process, analysts are saying it is not likely that much will disturb the steady flow of holiday spending.
According to ABN AMRO Bank senior foreign-exchange strategist Roy Teo, the US dollar should be able to keep its solidity, which means there is a better chance the US Federal Reserve bank will increase interest rates higher than originally expected. Teo goes on to say, “Right now, if you look at Fed fund futures, slightly more than two rate hikes are already priced in so potentially we could see a bit of room for the dollar to recover.”
Teo also goes on to say that he expects at last three rate hikes this year, which is aligned with the Fed’s original guidance. He also adds, “There’s some market speculation that they may be slightly behind the curve [and] may even move up to four.”
It had been expected that the Fed would increase rates for only the second time in a decade, recently, and when they did, the hike was only on a 25 basis points to target. The final rate, then, only increased at a rate between 0.5 and 0.75 percent.
Teo comments that he remains optimistic on the direction of the greenback but after the surge, we might see a correction in the US dollar, sometime early next year.
He adds, “We do expect the dollar to continue to be strong by end 2017 but I think in the short term, it may be a bit too frothy. We have recommended clients to go long the dollar after the Trump election, but at this moment, we would say be a bit cautious if you are not already long dollars.”
At the same time, Teo also cites a higher level of uncertainty in front of us, if we look cautiously. “Nobody knows for sure what concrete policy measures will materialize under Donald Trump,” he explains. “Expectations are relatively high.”