4 Pillars of US Economy

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The US dollar has been trading softer on near-term strategies, but the longer-term view points to higher levels or consolidation. We call it Ms USA at Invest Diva and monitor her dance moves closely on the forex dance floor. But what are important pillars of the US economy that can have major impacts on the US dollar in a long run? Today I’m looking at 4 important factors that drives the US dollar to see how she could be shaking it on the forex dance floor.

 

 

Interest Rates:

For 6½ years, the Federal Reserve has held its key interest rate near zero, and for nearly that long the financial world has speculated about when the Fed will start raising it.

After its March meeting, the Fed opened the door to a rate increase this year by no longer saying it would be “patient” in starting to raise its benchmark rate. Most economists had said that dropping “patient” from its statement would mean the Fed could raise rates as soon as June — a step that would course through the economy and could slow borrowing and squeeze stocks and bonds.

 

Yet at a news conference later, Chair Janet Yellen stressed that while the Fed had removed “patient” to describe its approach to raising rates, it still hadn’t decided when to start raising them. Yellen said any decision would depend mainly on what the latest economic data showed. And the data since then has been disappointing.

Will we see an interest rate hike? Yes. Will it be soon? Stay tuned at least until Wednesday with new Fed statement.

Unemployment:

The U.S. employment sector took a big hit in March when the net jobs added came in WAY below the market expectations at 126K vs. 245K forecast. However The number of Americans seeking unemployment benefits was little changed last week, evidence that employers are cutting few jobs. This could be a sign the growth slowdown will be temporary.

Some gloomy analysts however are expecting a rise in unemployment claims this week, which could have a negative effect on the strength of USD.

 

Consumer Confidence

As Americans perceive a more optimistic outlook with the economy and inflation rate, consumer confidence increased in April to the second-highest level in more than eight years.

According to the University of Michigan, the preliminary index of sentiment rose from 93 in March to 95.9 this month.

Hopes for future job and income prospects, lower fuel costs and (finally) end of winter are the main drivers of consumer spending.

 

GDP (Gross Domestic Product)

This year has so far followed last year’s pattern: another bad winter and another bad start to the year. Following this pattern, most investors view this first-quarter slowdown as a temporary setback, in what they still expect to be a strong year. First-quarter gross domestic product (GDP) is expected to grow a disappointing 1.3 percent at most. Economists’ estimates for second quarter GDP growth have actually risen recently, to more than 3% today from 2.8% in January.

(Source: http://www.tradingeconomics.com/)

 

All and all, the future remains bright for Ms. USA, but that doesn’t mean that dollar bears can’t earn small amount of pips shorting the currently ranging US dollar versus other major currencies.

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