The dollar pleasantly surprised investors at the beginning of this week by reaching one-week highs after its end-of-2017 period of decline. However, today the American currency began losing positions once again.
Right now investors’ sentiments about the dollar are dictated by the probability of further rate hikes in 2018. At the end of 2017 the Federal Reserve announced it plans three hikes this year, with two additional ones to follow in 2019. Over the past few days we also heard from a few Fed representatives, some even suggesting four instead of three hikes this year, based on the positive economic reports from the United States.
However, right now traders are quieting down with regards to the US dollar, as there is an important report expected this Friday, namely the most recent inflation statistic. Inflation is the most important determinant to the Federal Reserve as to whether to increase interest rates or not - if inflation is low, then lower interest rates are seen as healthier for the economy. Ideally, inflation should approach 2% for the Fed to take action. If they hike the rates prematurely, they can cause more harm than good to the economy, which is why all eyes are on Friday’s report.
