Dollar Continues Its Ascent – Global Currency Review and Forecast

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Dollar Hits 14 year High.

The Dollar Index* tacked on gains last week in the aftermath of Donald Trump’s surprise victory over Hillary Clinton. Fed chatter from Fed Presidents about a pending rate hike, including hawkish comments from Fed Chair Janet Yellen, boosted the dollar. Ms. Yellen noted that a rate hike soon was appropriate.

A general consensus among market participants has emerged that the Fed will raise interest rates at its December meeting. While the consensus has been wrong in the past, the Fed’s failure to raise rates all year after providing guidance at the end of last year and the beginning of this year that multiple rate hikes were ‘on the table’ in 2016, raises the odds of a rate hike in December.

The Dollar Index has been on a tear since the election of Donald Trump on November 8, 2016. The Dollar had been falling the past three weeks in the run up to the election. The Dollar Index closed around 100 on November 11 and last Friday the 101.32 after trading as high as 102.

During the week the Fed all but telegraphed a rate hike in December. A stronger dollar, however, may influence the Federal Reserve’s plans to raise interest rates in December. If the dollar rises further the Fed may delay yet again an interest rate hike. A strong dollar is deflationary as imports become less expensive. The Fed has stated that it wants more price inflation having set an inflation gold target of 2% that has not yet been met. Recent inflation readings, however, show that inflation is ahead of that 2% target.

Emerging markets currencies and all other currencies continue to weaken as the dollar soars. The Indian Rupee continues to fall after Prime Minister Modi’s shock announcement that Indian Rupee 500 and 1000 notes would cease to be legal tender. Cash shortages in India have been reported and trade has slowed, in some instances, to a standstill. The Mexican Peso also fell, hitting a record low on fears that a Trump Presidency may reverse current trade and immigration policies with the United States. The Chinese Yuan hit a seven year low.

The British Pound and Euro continued to fall last week. The Pound touched $1.23 and the Euro fell to $1.05.

Gold and Silver

Gold consolidated its losses in the $1215-1225 an ounce range last week before falling closer to $1200. Gold had risen sharply as soon as it became clear that Donald Trump was going to win the Presidency. Gold touched a high of $1342 an ounce soon after the election. That rally was short lived as the price of gold fell all last week.

Gold was trading at $1206 an ounce Friday morning, down $80 from last Friday morning.

Year to Date Dollar Index, Oil and Gold Prices

 bgasc gold oil and the dollar november 17 2016

Silver also fell sharply last week. The price of silver has fallen from about $2 since the election, or about 11%.

The price of silver late Friday morning was at $16.47 an ounce, down about $1.25 from last Friday morning.

Year to Date Dollar Index, Oil and Silver Prices

bgasc silver oil dollar YTD november 17 2016


Oil rose last week on talks of a potential OPEC oil production cut/freeze. The higher dollar and concerns over an oil glut muted oil’s gains. Oil rose the first six months of 2016 and leveled off during the summer, trading on news of stockpiles and the possibility of output freeze talks. OPEC’s decision to cut output had pushed oil back to over $50 a barrel. Since that announcement, oil has fallen back to about $45 a barrel.

What’s next?

Markets participants will pay attention for any economic data that misses expectations by a wide margin, as they expect a rate hike in December absent any major surprise

Here are some economic reports that probably will have little impact on the gold, silver and currency markets this week:

Nov 22 Existing Home Sales Oct
Nov 23 MBA Mortgage Index 11/19
Nov 23 Continuing Claims 11/12
Nov 23 Initial Claims 11/19
Nov 23 Continuing Claims 11/12
Nov 23 Durable Orders Oct
Nov 23 Durable Orders, Ex Trans Oct
Nov 23 FHFA Housing Price Index Sep
Nov 23 Michigan Sentiment – Final Nov
Nov 23 New Home Sales Oct
Nov 23 Crude Inventories 11/19
Nov 23 Natural Gas Inventories 11/19
Nov 23 FOMC Minutes Nov 2
Nov 24 Natural Gas Inventories 11/19

* The US Dollar Index tracks the US dollar vs. the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona and the Swiss Franc. The Euro comprises nearly 58% of the index.

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This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.