
Weekly Newsletter #12/2015
In the opinion of the Fed the strong US Dollar does reflect the strength of the US economy. In our opinion it reflects the high expectations regarding the US economy. And the Fed did not get tired to fuel those expectations with all their positive comments in regard of the US economy over the last few months. But yesterday this expectations took a hard hit, with the Fed slashing its own projections for interest rates. For the end of this year the officials lowered their projections by almost the half from 1.125% to 0.625%. So we are really talking about an strong revision in their opinion. And the market had a similar assessment of this move. The US Dollar fell 1.7% against the 10 major peer currencies, the most since 21 months. The Fed states, that a rate increase in April is pretty unlikely now but June should not be ruled out. Anyway. the US is in the midst of an inofficial currency war, with being in the worst position by having a really strong currency now. International competitiveness of their economy is suffering and a rate hike would not improve the situation, even if the strong US dollar already includes a lot of high expectations Ð especially in regard of the interest rate developement. So the FED will really have to be cautious in raising the rates, cause in the current environment and with all the QE measures around the world higher interest rates will for sure cause an even stronger flow of assets into the US dollar, making the strength of the greenback an even worse topic for exporting companies.
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