Dollar Dips: Investors anticipate pivotal Fed update soon

The US Dollar has dipped and was last seen at 103.8500 against peer currencies. A red mark against the US Dollar Index does overshadow the year-to-date percentage change, which stands at 0.348%. Nevertheless, the US Dollar was earlier seen slipping, yet investors are optimistic that the Federal Reserve could soon publish updates that would prove pivotal for the currency.

Investors have their sights set on the movement of the US Dollar to better their forex portfolios. This further extends to traders who could bear losses from their cross-border transactions.

Some of the factors potentially leading to the downward trend of the US Dollar are the currency’s supply, the government’s debt, and the trade deficit, among others.

Impact on financial market

The Federal Reserve has been hiking rates throughout 2022–2023. Rates were stagnant for a while, but then inflation played a stronger game, and the Fed was forced to take an unpopular action. Experts believe that those days have passed. Meaning, the Federal Reserve is at the end of a rate hike.

At a time when rates were rising, it affected the market by blocking a major portion of the capital. Its movement was at its lowest; traders were unable to expand their portfolios, and returns were down with high outgoings. Inflation was making things worse for traders, and even common citizens, for that matter.

Simply put, less capital could have been diverted to investment. Financial analysts believe that the Fed cannot take a turn by not raising rates anymore. Anticipation is that the earliest a drop could come is by May 2024. The previous anticipation was for March 2024. The current situation has forced authorities to reconsider before making the situation any worse. Dollar dips are affecting investment since there is a lack of a sustainable economic environment to support any development.

It is not that doing business in the USA is a bad idea. However, investors would prefer to avoid the possibility of having their funds blocked by waiting a few more months. While this is going on, it’s possible that trading and investment-related activity will shift to other nations and currencies.

Some factors that are potentially affecting the US Dollar are:

  • Rate of interest, which the Federal Reserve is likely to keep under check at least till March 2024. A further increase will drive away investments. Thereby, the value of the US Dollar.
  • Dollar supply, considering a lot of countries are in talks with their counterparts not to include the USD as a medium of exchange. For instance, Russia and India are discussing trade in Ruble and INR. This development is still in progress, and the current situation is too early to comment on it.

As of the middle of 2023, almost 23 countries have agreed to not use the US Dollar at all for their trades. Eliminating the Dollar will harm its value, if not its reputation.

Another direction from which the heat may come is from the Central Banks of other countries deciding whether to raise their rates or not. The Swiss National Bank (SNB) could be backing out of supporting the forex market for a while.

Market reactions are only obvious to the fall of the US Dollar.

  • De-dollarization will become a new norm, and investments will become a matter for only two countries in every possible way.
  • Inflation will gain traction within American boundaries and extend to other parts of the world. A weak dollar takes with it strong imports, affecting those regions that heavily depend on exporting their products and services to the American market.
  • The stock market is likely to dip with similar sentiments. Traders may choose to withdraw rather than hold it for another year.

Chances to hold funds are lower since those losses can be transitioned to a better bottom line by making the withdrawals.

Conclusion

The Federal Reserve concludes its 2-day meeting on Wednesday. Reports could be out soon. The US Dollar is at 103.8500 against its peer currencies. Two more trading pairs, for reference, are at Euro/Dollar $1.0790 and Dollar/Yen 145.5950. A slip will have a global impact, depending on how the rates are treated in the report.

Roxanne Williams

Roxanne Williams has recently joined as a market reporter for CryptoNewsZ - the 24/7 crypto news site, where she produces recent stories, technical analysis and price updates on world's leading cryptocurrencies.

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