USD is supported by the Fed
US dollar strengthened in January versus other currencies. US dollar index stays near 11-year highs.
The Federal Reserve decided not to send any new signals to the market. In January the central bank has left its policy unchanged. The bullish factor for the USD was the fact that the Fed didn’t comment on its strength. This means that the central bank isn’t against the current uptrend of the US currency. In addition, although the Fed has spotted a decline in inflation, in the long-term inflation expectations are regarded as stable. The Federal Reserve is quite optimistic about the US economy and especially the improvement of the labor market. Although there are some external risks for the US economy, all in all the Fed is more hawkish than the other central banks. This is a positive factor for the greenback.
In the coming months the Fed will closely monitor American economy – in March the regulator will have to announce its position on the timing of the rate hikes.
Next week there will be new important releases – on Monday watch the ISM Manufacturing PMI, on Wednesday the ADP Employment Report will be released and the highlight of the week will be on Friday – NFP and the unemployment rate.