USD Monthly Review March 2018

The new Fed Chair seems to have continued where the old one left off. Proactive rate increases will continue despite concerns that Jerome Powell may be more reactive. Powell’s first congressional testimony contained no surprises and it is clear he will take his time over bringing his influence to bear.

Powell commented that he was confident that growth in the economy is sustainable and sees no current risk of a slowdown. The risks in the financial sector are moderate and inflation is controlled but prone to an increase as the jobs market tightens.

The U.S. economy grew at 3% in Q4’17. Inflation remains below the Fed’s 2% target, yet the dollar continues to fall. Strong employment reports are driving hopes for further rate hikes.

The longer-term prospects for the dollar are being hampered by market concerns over the ballooning budget deficit which is set to reach one trillion dollars in 2019. This is due to the recent round of tax cuts and the growth Federal infrastructure spending.

Inflation is the major concern for most G7 Central Banks as the global economy improves. The Fed will continue to be the most proactive with at least three hikes slated for this year. The fed will remain proactive despite the New Chairman’s caution.

The U.S. employment report will be delayed to March 9th as the Dept. of Labour conjures up a believable estimate. The market will be anxiously awaiting the data for the pace of wage increases since this is the number that started the recent inflation concerns.

Any dollar reaction to the employment report is likely to be short-lived unless there is another major departure from expectation. Wages are likely to have continued to grow at close to 3% which will justify the rate hike profile the Fed has in place.

There are continued rumblings regarding the influence Russia played over President Trumps election and now he has announ­ced that he will stand again in 2020. Just how that will play out remains to be seen but in the short term congressional hearings continue to hound the President who seems unconcerned.