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Greenback enjoys ascent post policy week

Author: Bharath Sunnam/Wednesday, August 8, 2018/Categories: Currency

Greenback enjoys ascent post policy week

The dollar index is likely to stay elevated following a robust economic outlook in the US and weaker economic prospects in rest of the world.

The central banks across the globe have had a busy schedule last week, with the US Federal Reserve, European Central Bank (ECB) and Bank of Japan maintaining a status quo on the interest rates and the Reserve Bank of India (RBI) and Bank of England raising it by 25 basis points.

In the US, the Federal Open Market Committee, a committee within the Federal Reserve System, upgraded its assessment of the country’s economy, saying it would continue to grow robustly for the next few years. Although US President Donald Trump accused the Fed of disrupting the growth pace by raising borrowing cost, the American central bank maintained that it is likely to raise rates more than once in the coming meetings in 2018.

On the other hand, sitting on weaker economic data, the ECB refused to raise policy rates, triggering a free-fall of the Euro.

Albeit, BOE’s policy rate hike and governor Mark Carney’s speech has made resulted in a tumbling pound against the dollar. The Bank of England warned of “uncomfortably high" risk of leaving the European Union with no deal.

In Asia, with Japanese inflation failing to move higher despite the continuous asset purchase programme, the BOJ kept the interest rates unchanged. In a surprise note to the market, the BOJ has increased the trading range for the Japanese government securities which boosted volatility.

Amidst these, the dollar index continued to enjoy elevated levels as currencies of emerging markets, exposed to the risks of the lingering trade concerns, continue to remain weaker against the greenback.

The author is a fundamental research analyst at Karvy Forex and Currencies Pvt Ltd

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