Yesterday the US Federal Reserve raised interest rates to 1.5% and despite this positive movement the US Dollar dropped in value against most major currencies. Chairlady Janet Yellen in her last statement before being replaced by Jay Powell next year appeared to be less hawkish than many had predicted. Over the past few months several members of Federal Open Market Committee have suggested that they hope to see three or more hikes next year the same as this year. However, Yellen in her statement pointed to the rate only moving to 2% next year, which is below what people expected.
The start of next year will see a new Chairman come to the forefront and he’s expected to continue with the current policies. This should provide the US Dollar with the opportunity to potentially make gains against several currencies. Should Sterling find strength however there’s an argument to say that a lot of the US Dollar strength has already been priced in. This means that the gains made could well be given up against the Pound over the next few months.
On an even more positive note for the US Dollar, Retail Sales today came in 0.5% better than expected, mainly thanks to a record breaking Black Friday sales. This is an indicator of consumer confidence as when the opportunity comes to spend people are prepared to do so. It does however beg the question next year of how much further can Black Friday sales increase by. Either way the event this year has proven that consumers in the US have expendable income and don’t feel as though they have to save. The tax reforms introduced by Trump could provide even further expendable income and 2018 could well be a very positive year for the US Dollar. Should inflation keep rising and consumers keep spending, there could comfortably be three rate hikes next year enormously boosting the US Dollar.