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Will Rising Fed Fund Rate Propel the US Dollar Higher?

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Jun. 19 2017, Updated 5:25 p.m. ET

A hit and miss for the US dollar

The US Dollar (UUP) Index continued to be confined to a range with a close of 97.5, a change of 0.09% as compared to last week’s close of 97.2. The US dollar lost the gains it saw after the hawkish FOMC statement on Wednesday, as the Fed has projected a positive outlook for the US economy and signaled further rate hikes and balance sheet trimming if the economy continues to improve as expected. Weaker-than-expected US economic data, which included softer housing starts, core inflation, and retail sales limited the gains for the US dollar in the previous week.

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Trader’s position in the futures market

As per the latest Commitment of Traders report, large speculators have continued to decrease their long positions on the US dollar. As per Reuters, the total long US dollar position stood at $6.5 billion as of June 13, a decline of $1.5 billion as compared to the previous week. The US dollar remained largely unchanged against the euro (FXE), pound (FXB), and yen (FXY), but has depreciated against the Australian dollar (FXA), the New Zealand dollar, and the Canadian dollar (FXC) after the countries reported strong economic data.

Will the US dollar continue to rally?

Economic data remains light in the US while there are a lot of Fed speakers scheduled to speak this week. Markets could access these Fed speeches for future guidance after the surprising hawkish tone by the Fed in the June meeting despite weak inflation and retail sales data.

In the next part of this series, we’ll analyze the bond market’s reaction to the hawkish FOMC statement.

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