Mixed Messages from Fed Gives Dollar Pause

The U.S. dollar was trading mixed on Monday afternoon in Asia as traders tried to digest recent messages from the Federal Reserve which showed some concern about the global growth outlook which may impact the pace of expected interest rate increases. On Friday, two Fed members, Richard Clarida and Robert Kaplan, both publicly noted their concern that the slowdown of the global economy could have direct effects on the outlook for the U.S. economy. Such comments gave traders the impression that the Fed may put the brakes on its rate hike strategy.

The dollar index was up a modest 0.05 percent as of 2:57 p.m. HK/SIN, trading at 96.51 .DXY. The dollar struggled against the yen, trading down 0.06 percent to 112.75. The dollar eased 0.8 percent against the yen last week as traders opted for the safe-haven currency to escape political strife in the Eurozone and between the U.S. and China. The dollar was up against the euro to $1.1403 as the euro remained under pressure from continuing Brexit woes.

Among the issues pressuring the Fed is a slowdown in residential investments which were nearly halted in the first three quarters of 2018. With the U.S. in a ‘fully employed’ economy, it’s likely that high mortgage rates are what’s battering the housing market; a 30-year fixed mortgage is now hovering around 5 percent, nearly 100 basis points higher than this time last year.

A slowdown in the housing sector inevitably causes a decline in consumer goods because consumers are less likely to purchase housewares, furniture and appliances. To this end, consumer durables grew at an annual rate of only 1.4 percent in the first three quarters of 2018, a rate much lower than anticipated. The rising costs of imports due to President Trump’s Chinese tariffs will do little to drive American consumers into stores.

All told, the American economy currently paints a mixed picture, one that contains both trouble spots and strengths, and this confusing message, highlighted recently by the Fed, is prompting traders to shy away from the dollar until the picture becomes a bit clearer.

Sara Patterson
Sara Patterson has a Master’s Degree in political science and enjoys analyzing both current events and the international markets to get a fuller perspective of the currency market. Before turning to financial writing, she taught English writing skills to high-school age students. Sara’s work has been published on various financial and Forex blogs.