The US dollar is up slightly this morning. Earlier in the day, the dollar was even higher following comments from Bank of Japan Governor Kuroda suggesting that Japanese monetary policies would remain easy. As the US hikes interest rates while Japan maintains the status quo, the dollar is likely to keep strengthening against the yen. The US dollar is enjoying quite a few tailwinds including (1) hopes for higher business and consumer spending via Trump's tax reform package, (2) a backdrop of rising inflation thanks to stronger crude oil prices and (3) strong GDP growth. All three factors are helping to drive future rate hike expectations, helping the dollar strengthen.
USD/JPY is currently trading at 114.30. Earlier in the day, the pair had traded as high as 114.70. EUR/USD is flat this morning and is now above 1.1610. The pound is down slightly this morning, with GBP/USD currently above 1.3070.
This is a relatively light week for the US dollar looking at the economic calendar. While Yellen is speaking on Monday (at an award function for ethics in government), she is not expected to address monetary policy. On Tuesday, we’ll see consumer credit growth figures. On Thursday, we’ll see continuing and initial jobless claims. Last week the Fed did not raise interest rates, choosing instead to set the stage for a hike in December.
Following good economic data releases and higher inflation expectations, we are upgrading the US dollar to bullish. After strengthening recently, the currency is looking overbought. Our analysis is based on various technical indicators when looking at a daily chart of the US dollar index.
Thanks to progress in enacting Trump's tax reforms, the US dollar has been strengthening since mid-October. The currency has also been supported by rising bond yields as Trump looks set to select the next Federal Reserve Chair. As such, we are upgrading our medium-term outlook on the dollar back to bullish. After looking oversold in early October, the dollar is now trading within normal conditions. This is based on technical indicators when looking at a weekly chart.