The US Dollar has been in a slight downturn this week.
The Euro has reached 1.13 to the US Dollar despite the continual threat of a Greek default. Just a few weeks ago it was at 1.08. But a few weeks before that it was at 1.13. The message is quite clear here from the markets. The US Dollar is trading in a small band and is steady here.
What the markets are not telling you is the outlook for the US Dollar.
If you read any financial media, the biggest discussion is around when will the Federal Reserve raise rates. Every speaker and writer has an opinion and his/her facts to back them up. What seems to be clear to me is that the market is convinced that the Interest will go up and their desire is to have this event sooner rather than later so that they can stop speculating and move forward to the next upswing in the stock markets.
There is no one talking about the possibility that rates may not rise for a year or two. It seems like no one has the stomach to entertain such a thought. It is a will and desire to see rates rise, not a fundamental economic argument.
As an example, Janet Yellen made a statement on May 22 which said, “I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate."
The news media outlets ran with the story without even checking all the facts. Markets immediately reacted, sending the dollar up and stocks down on fears of higher rates.
The problem with that was that the reports left out the fact that Yellen said “If the economy continues to improve as I expect.”
As you can see, the market desires a rate hike, not that the markets fundamentally deserve one. Inflation is nowhere to be seen, especially in terms of what the feds measure. The PCE (personal Consumption Inflation) indicator grew by 0.1% last month, the slowest since 2009. Yes jobs are up but don’t get me started on that. In the last 4 months, we had jobs growth of 880,000.
Meanwhile the BLS website tracking ghost jobs (Birth Death rate Model) shows we had 630,000 fake jobs. So in real terms we can only verify 250,000 jobs over past four months. So
I am not sure I buy the jobs story.
Last week we even had the White House squashing rumors that the President had mentioned during the G-7 meeting last week that the strong Dollar was a problem. We have seen many companies struggle to produce results with the strong Dollar issues.
The Q1 GDP was -0.7% and now there is hope that Q2 will be strong. It is still a hope. While we may escape recession, we will not be seeing a position of confidence and strength.
So let’s recap: No inflation, No jobs of substance, no real growth in GDP terms. In such an environment, why would anyone justify the Feds raising rates other than an irrational desire to raise rates.
The IMF has also come out and stated that they do not believe that the Feds should raise rates till 2016 at least.
I personally do not believe that the Feds will raise rates this year and 2016 is an election year. In the history of the Feds, they have not raised rates in an election year. So will the rates go up in 2015, 2016 or even later?
The US Dollar will have to decline later this year as I have been saying for some time now.
It may be time to consider layering in short Dollar positions.
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