U.S. Dollar: Federal Reserve Disappoints Dollar Bulls

U.S. Dollar FallsThe U.S. dollar index fell to a one-month low, indicating traders don’t expect the Federal Reserve to hike interest rates later this year as many analysts now expect.

The dollar index, which measures the value of the dollar against a basket of major foreign currencies, fell one percent on the week, marking its third straight weekly loss. The dollar fell the most against the euro, the Japanese yen, and the British pound.

The move signals the market is not expecting the U.S. Federal Reserve to hike interest rates. Most market analysts have been calling for Fed Chair Janet Yellen to raise the central bank’s overnight lending rates later this year, which would be generally bullish for the dollar. However, weak economic data released earlier this week could put those plans on hold.

On Thursday, June 18th, the Consumer Price Index report showed that prices rose less than expected in May. After excluding items like food and energy, the cost of living rose only 0.1% month-over-month in May. This figure is well below the Fed’s two percent annual inflation target, a sign the economy is generating only modest upward pressure on prices. (Source: The U.S. Bureau of Labor, June 18, 2015.)

Uncertainty overseas could also push back a Fed rate hike. Globally, all eyes are on the Greece debt talks, which could roil markets if the Greek government and its creditors have failed to clinch a deal.

“To the extent that there are impacts on the euro area economy or on global financial markets, there would undoubtedly be spillovers to the United States that would affect our outlook as well,” Yellen wrote in a press release earlier this week.

She added, “Even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

In other words, although policy will be data-dependent, economic conditions could only warrant gradual increases in the target Federal Funds Rate. That will discourage foreign investors from holding U.S. dollars.

Also Read:

2015 Predictions: U.S. Dollar to Collapse?

Why the U.S. Dollar Is Rising So High; Dollar Collapse in the Works?

Why Is the U.S. Dollar Collapsing in Value All of a Sudden?