The US Dollar Overview for July 202107.07.2021by Michalis Efthymiou
The US Dollar has had an up and down year which has been caused by multiple issues which we will speak about throughout the below analysis.
The US Dollar Index is measured not against one currency but six different exchanges. The index is used mainly to obtain a fairer and strong indication of the US Dollar general price movement as it minimizes quote currency movement risk. The US Dollar Index has been declining since March 2020 when the Coronavirus outbreak gripped the world. The index has declined by 14.15% in total when we compare the price highs and lows of 2020. The price this year has seen both bullish and bearish price movement and many corrections.
Investors remain focused on yesterday’s publication of the minutes of the US Fed’s FOMC meeting, which disappointed the market. Some officials did say that the economic recovery is progressing faster than expected and accompanied by excessive inflation, but the majority decided that there should be no rush to tighten monetary policy. The regulator said that it will warn the market in advance about the decision to reduce the volume of asset repurchases. The current rise in inflation was again recognized as a temporary phenomenon, which is not a reason for adjusting monetary policy. Data on the initial jobless claims released today was also weak. Instead of the expected reduction from 371,000 to 350,000, the figure rose to 373,000, which may mean a slowdown in the recovery of the labor market.
The issue which the US economy has been facing is high unemployment matched with high levels of inflation. Hyperinflation is known to cause adverse economic conditions in the longer term, especially when there is high unemployment or a low rate of general wage increases. However, several experts believe that the regulator may take this step as early as September. There is a significant possibility that the market will not see any hints of a change in the current policy since the regulator’s officials have repeatedly stated that the rise in inflation is temporary. Temporarily high levels of inflation is unlikely to cause lasting damage to the economic in the medium to longer term according to the Federal Reserve.
We should also note that the administration of US President Joe Biden will soon face a serious struggle to raise corporate taxes, as trade and industry lobbying groups have developed a plan to combat this idea. In particular, opponents of tax increases argue that instead of economic growth, it can lead to a long-term reduction in GDP by 0.5% and a decrease in the number of jobs by 101,000 people. Nevertheless, it will be difficult for corporations to resist the increase in taxes, since, in addition to the economic, this decision also has a significant political component. At the moment, about 70% of American citizens support the idea of tax rises, and its implementation can significantly strengthen the position of the Biden administration. Investors continue to look for political stability as well as economic strength when investing in any type of asset. For this reason, If the president is unable to successfully pass his new tax proposals, the exchange rate may further be affected.
The price movement of the US Dollar has declined over the past two days, bringing the weekly exchange rate into a minus. Looking at the smaller timeframes, we can again see that the currency is actively declining. The next support point on the US Dollar Index is currently placed at 91.54. The Market will be eager to see how the price will react as it approaches the next psychological level.
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