Stocks Look Healthy, the Dollar Doesn’t

Stocks Look Healthy, the Dollar Doesn’t explained by professional Forex trading experts the “ Stocks Look Healthy, the Dollar Doesn’t” FX trading team.

 Stocks Look Healthy, the Dollar Doesn’t

With only five full weeks left in the year, 2017 is nearly a relic of the past. The US Dollar will probably be thankful for the calendar to turn; it has been a disappointing year to say the least. After hitting its high on the first trading day of 2017, the DXY Index hit a yearly low on September 8 and has only rebounded marginally since then.

On the other hand, 2017 has been another great year for bonds and stocks: US Treasury yields at the long-end of the curve continue to fall, even as US equity markets pushed relentlessly higher. In fact, during the week of Thanksgiving in the United States, all three major US equity markets hit new intraday all-time highs.

These trading conditions that have been the hallmark of not only the first two months of the fourth quarter but 2017 in general appear to be destined to continue through the end of the year. As such, we’re watching three major themes as the next five weeks wind down into 2018:

1. The Disagreement Between the Fed and the Market Over the Path of Rate Hikes

The biggest threat to the US Dollar through the end of the year, and well into 2018, is the prospect that the Federal Reserve is wrong. Since December 2016, the FOMC has been projecting three rate hikes during the next calendar year. However, market participants disagree: only one 25-bps hike is being priced-in, currently for June 2018.

This dissonance between the Fed’s point of view and the market’s perception of Fed policy is the most considerable source of concern for the greenback. As we saw after the Fed kicked off the rate hike cycle in December 2015, the frequent habit of reducing the projected path of future interest rate hikes (the “glide path”) proved to undermine the US Dollar for nearly all of 2016.

 Stocks Look Healthy, the Dollar Doesn’t Conclusion

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