U.S. Dollar Likely To See Choppy Price Action In 2019
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(Kitco News) - The recent weakening of the U.S. dollar against the other major currencies is a near-term bullish development for the raw commodity markets, including the precious metals, most of which are priced in U.S. dollars on the world markets.
A weaker greenback on the foreign exchange market makes those raw commodities priced in dollars less expensive to purchase in non-U.S. currency.
Just this week the U.S. dollar index hit a 2.5-month low. The USDX is a basket of six major world currencies weighted against the greenback and rolled into one composite index price.
However, do not look for an extended price decline in the USDX in the coming weeks and months, as conflicting fundamental forces are likely to keep the index trading in a choppy and range-bound fashion between the technical support and resistance lines seen on the monthly chart for the USDX.
On the bearish side of the U.S. dollar equation, the recent marked shift in rhetoric coming from Federal Reserve officials, including Chairman Jerome Powell, suggests the U.S. central bank will back way off the accelerator on raising interest rates. This is in contrast to most Fed watchers who just a couple months ago were reckoning the Fed would raise U.S. interest rates at least three times this year. Now, the thinking is that the Fed won’t make any rate hike, with a minority even thinking the Fed could slightly lower interest rates this year. This new Fed bent on an easier monetary policy is dollar-bearish but raw commodity-market bullish. Lower interest rates invite more spending from consumers and businesses, which in turn means more demand for raw commodities.
Bullish for the greenback in 2019 will be a strong U.S. economy that remains the largest and most robust in the world. While there is speculation that major world economies could see slower growth rates in the coming months, the U.S. is still likely to be the economic work horse even if its growth rate backs off a bit.
The continued dominance of the U.S. dollar as the ultimate currency when it comes to a safe-haven store of value cannot be overlooked. Any turbulence in world financial and stock markets is going to find traders and investors seeking U.S. dollar-backed U.S. Treasury securities. The sustained higher volatility in the U.S. stock market the past few months is likely going to continue well into 2019, which will at the very least limit the depreciation of the U.S. dollar.