It has been an eventful week for the dollar, with both political and economic events causing swings in the Greenback’s value. Today was a particularly volatile day; this morning the dollar opened at near 15-month lows following a turbulent week in the White House. Donald Trump remains under pressure as the investigation into whether the Russians were involved in the 2016 election continues. Last night the investigation really gathered momentum after it emerged a grand jury has been involved. In essence, a grand jury is a secret jury that can hand over any evidence it chooses and can question witnesses who don’t have a lawyer present. If there is enough evidence, then they will pursue a prosecution. I think this story will keep the dollar under pressure for some time and wouldn’t be surprised to see real dollar weakness, the more a prosecution seems possible.
However, in a tale of two halves, the dollar has made a comeback this afternoon. Although politically the US may seem rocky, the economy certainly doesn’t. For the second month in a row, the number of new jobs created in per month succeeded 200,000 accompanied by a further drop in unemployment down to 4.3% and a wage growth that supports an expanding labor economy.
What this essentially means is that more American’s are returning to work now, and although these jobs aren’t well paid, this helps to keep wage growth impressive. Following a drop to its worst performance since January 2015 against its most traded counterpart the Euro, the dollar has surged 1% in light of this positive news.
What does this mean for future interest rate hikes?
I personally think that the dollar’s strength can be attributed to the fact that this significantly increases the likelihood of interest rate hikes from the Federal reserve this year. Investors will have seen the positive jobs report today and started to hedge that more rate hikes are on the cards this year, which would have helped the Dollar make healthy gains against most currencies. The questions left to be answered in my opinion is when do they raise rates next and how many more times will they do so this year?