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How Long Will the Dollar Reign?

Published on: 03/03/2017

Everyone who’s been following the financial markets would certainly agree that the United States have been enjoying a nearly fantastic economic climate lately. The question we’ll explore today is a vital one, however – namely, how long will this last? What does it all mean?

First off, let’s recap all the positive data of late. Ever since Donald Trump was elected President in early November 2016 Wall Street has been having a blast, with stock market gains exceeding 3 trillion dollars over the last few months. In addition, the jobless claims are currently in a nearly five-decade low and CNN reports that small businesses show optimism unseen in the last decade. Even the manufacturing index, an important factor of economic health, is performing more than well. Overall, we could say that as far as numbers are concerned, America is doing great.

Nevertheless, it would be irresponsible for investors to ignore several dark clouds on the horizon. They hold the potential to disrupt the progress that we’re currently seeing and affect the USD (and with it, most other currencies).

Reality Check
Much of the success seen in recent months is based on promises and expectations, as investors and professionals from the finance sector have tried to gauge Trump’s behavior as President. He made some pretty bold claims in his campaign about revitalizing infrastructure, employing protectionist policies, bringing businesses back to the US, and providing a new stable healthcare plan. None of these promises have been realized yet and investors’ doubt as to their feasibility is rising by the hour.

A sign of true economic health comprising more than two thirds of the US economy, spending is also a big factor to consider in this discussion. Despite all the positive data mentioned above, spending statistics have been disappointing, which poses a significant obstacle to growth. Trump promised his voters growth that’s twice greater than seen under Obama and it’s still unclear how he’s going to achieve it.

The Federal Reserve
We have already discussed the Fed’s plans to increase interest rates. Usually a rate increase happens when the central bank sees the economy at a satisfactory state and is thus associated with economic well-being. However, a greater interest rate would impact the stock market (and financial markets in general) and may cause a decrease in some of the data that’s been performing well this far. In fact, there are many indications that the next rate hike will be announced on March 15 and we expect a highly volatile market at that time.

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