Fed’s Inflation Target Looks to Push the Greenback LowerPosted 12/20/2019 9:48AM CT |
March U.S. dollar futures are 17 points higher Friday morning after a week of gains. This retracement higher is likely the result of higher interest rates and an oversold technical condition. Continue to watch the 96.58 level; any close under key support should hint at further downside. Fundamentally, the breakdown in the dollar can be attributed to two things. The first is the injection of liquidity being pushed into the US economy by the Fed. A higher supply in any market will drive prices lower. The second factor pushing the dollar lower is the business cycle. Higher inflation is one of the goals of the Fed and is often observed during later stages of the business cycle. The dollar index is most heavily weighted against the euro and the pound, so those currencies have the most to gain if the dollar breaks. Once inflation returns to the economy, it will elevate the price of commodities across the board, so commodity currencies, like the Australian and Canadian dollars, will likely move higher as well.