Investors and traders all over the world have had a tough time in the year so far. The trade war between the United States and China, slower global growth, and the uncertainty with regards to rate cuts have made life difficult for them. Consequently, investment activity has stalled a bit, and many investors have instead decided to park their money in more secure assets like the US Dollar and gold. The dollar has had an excellent year so far, and it has not come as a complete surprise. Investors have been calling for rate cuts, and this coming week could be a big one.
The European Central Bank and the United States Federal Reserve are both going to announce their course of action by the end of the month. Although traders do expect rate cuts, there is a feeling that the rate cuts are not going to be at the levels that they had expected. As a result, the optimism has been dampened somewhat, and the US Dollar reached its highest level in two weeks yesterday. On the other hand, the Euro has steadied as well as the European Central Bank readies for its meeting. Over the past week or so, the market believed that the rate cuts by the Fed were going to cut rate by 50 basis point but reports now suggest that it is not going to be any more than 25 basis points. Hence, the market is now having to row back from its earlier position. The General Manager of a leading research institute in Japan said as much.
“The market had gotten ahead of itself with expectations for rate cuts, and now we are starting to correct this. This is supportive of the dollar. This also means it is difficult to test the euro’s downside at these levels.”
The rise in the value of the dollar is hence a clear indication that traders are now trying to regain the positions that they had given up in anticipation of deeper rate cuts.