According to UBS, the Fed fiscal target will most likely remain unattainable in 2018, putting the central bank in an awkward position to raise interest rates three times this year. Inflation in the US is expected to close the year at levels around 1.7%, not at 2% as the Fed Wants. This is the result of the trump tax reform that the Trump administration has made.
Over the last few days, inflation has been a serious problem that has been addressed by both Wall Street big banks and the Fed. Two of the Fed members, Patrick Harker, Fed President of Philadelphia, and Raphael Bostic, Fed President of Atlanta, changed their vision of raising interest rates in 2018, expressing the view that 2 lifting would be enough for the economy to function properly. They believe that inflation will remain weak in 2018.
What can we expect from USD?
All this has a negative impact on the USD, but on the other hand it supports the rise of the indices. The weak dollar at the beginning of the year reflects precisely these concerns of the Fed, and in the short term we expect the weakness of the greenback to remain. If the Fed changes its interest rate plans, we will see a deeper USD move. The next Fed meeting is on January 31, and we expect to receive full information on how many times the bank plans to raise interest rates in 2018. At the moment, expectations are for three holes, but Wall Street's moods show another.
The Dollar Index is at key levels, and Short-a is now more likely. The index is in a down trend and close to the previous bottom, which may be key to overturning current moods.
The zone between 91.00 and 91.00 is suitable for positioning the dollar with long positions, but a breakthrough in this zone will increase negative moods and shorts will prove to be the better deal.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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