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Dollar on the offensive

The dollar went on the offensive against the euro and pound in the first half of today’s European trading session. The US dollar index (DXY), at the time of writing, is at the 92.80 mark (+0.38%), while the euro index (ECX) is at 94.00 (-0.32%). In my opinion, the dollar’s growth over the last few days is due to a partial restoration of investor confidence in the US economy as well as some traders cashing in on their long positions on the EURUSD around the psychological barrier of 1.20.

Remember that today, at 19:45 (GMT+3), head of the US Federal Reserve, Janet Yellen, is set to give a speech in Cleveland on the subject of “inflation, uncertainty, and monetary policy”, during which we may see increased volatility on the market.

Yesterday, in the second half of the US session, the safe haven assets, namely the Swiss franc, Japanese yen, and gold, climbed against the dollar on the back of some strong rhetoric from the Pentagon regarding the situation on the Korean Peninsula. Still, the demand for these safe havens was short-lived, and today, the dollar is recovering its losses. The USDCHF pair is trading at 0.9717 (+0.54%), the USDJPY pair at 111.79 (+0.07%), while gold is trading at 1,306 USD per Troy ounce (+0.37%). Though there are significant precursors to the long-term strengthening of the dollar, it’s essential to understand that if the geopolitical situation around the world gets exacerbated, this can bring about periodical surges in the prices of the safe haven assets.

The New Zealand dollar is undergoing a correction against its US counterpart in anticipation of the Reserve Bank of New Zealand’s (RBNZ) meeting - the results of which will be published at 0:00 (GMT+3) on Thursday - and is currently trading at 0.7209 (-0.89%). Financial markets expect the RBNZ to maintain the key rate at 1.75% at least until the middle of next year. I think that if the New Zealand economy grows by 3.5% or more, and inflation hits 2% year on year, the regulator could start its cycles of raising interest rates even earlier; in the second quarter of next year.


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