Dollar Trades At 12-Year High

Market Trends - 03/03/2015

Even though Federal Reserve Chair Janet Yellen’s comments substantially sapped dollar momentum higher as she offered lawmakers an extended timeline for hiking benchmark interest rates, the latest move higher has seen the US dollar trade at the highest level in the last 12-years. This comes on the heels of growing concerns that Europe will need to foot the bill for another Greek bailout while the Bank of England also lengthens its own rate outlook timeline. Even though it was expected that the Bank of England under the stewardship of Governor Mark Carney would be the first developed market to raise rates, lingering concerns surrounding the European outlook continue to cloud forecasts for an earlier rate increase.

Since the Federal Reserve ended its quantitative easing program, speculation was high that the Central Bank would move to hike interest rates in the middle of 2015. This fueled a rally in the dollar that started in August with the trend higher yet to pause for a serious pullback or technical retrace. However, the spectacular misses of economic indicators relative to expectations in February is giving traders pause for caution as the Federal Reserve chooses to remain “data dependent.” This could see the dollar correct modestly to the downside in the range of 15-30% of the initial move higher. Even though the dollar could witness a major correction, there is the possibility that further gains are warranted as the dollar remains the least dirty shirt in the economic laundry.

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