Will the US Dollar Surge Higher after FOMC Meeting?
The US Dollar Index (UUP) continued its ascent against the other major currencies as investors positioned for a rate hike from the Fed and reacted to the increased possibility of tax reforms by the end of this year.
The British pound (FXB) depreciated by 0.60% against the US dollar (UUP) for the week ending December 8.
The euro-dollar (FXE) closed the week ending December 8 at 1.18, depreciating by 1.1% against the US dollar (UUP).
The S&P 500 Index continued its ascent in the previous week buoyed by the optimism surrounding US tax reform.
US market performance remained upbeat last week with the average returns of the three major indexes above 20% year-to-date.
ADP’s jobs report for November was published on December 6. It provided deeper insight into improvements in US employment.
According to ADP’s national employment report in October, US private sector employment rose by 190,000 jobs in November.
Usually, stock markets have a positive reaction to tax cuts. Since the US election in November 2016, investors have been hoping for tax reforms.
The proposed US tax reform bill, or the Tax Cuts and Jobs Act, received approval from the US Senate on December 2. There was a vote of 51-49 in the Senate.
The increase in price pressure, although reassuring for the Fed, might not lead to a higher rate of inflation in the short term.
The inability of employers to find suitable workers is leading to wage increases, especially in the professional, technical (XLK), and production (XLI) sectors.
According to the November Fed Beige Book, economic activity in the United States continued to improve at a modest pace in October and through mid-November.
Comparing the economic performance with economic expectations and the previous cycles gives investors an idea of whether the economy is expanding or contracting.
The Beige Book, a source of data for the FOMC, gives investors in the bond and currency markets an idea of the future course of the Federal Reserve’s policy.
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The Japanese yen (JYN) depreciated against the US dollar for the first time in four weeks.
The British pound (FXB) appreciated by 1.0% against the US dollar (UUP) in the week ending December 1.
The euro-dollar (FXE) closed the week ending December 1 at 1.19, depreciating by 0.33% against the US dollar (UUP).