After concluding the year 2022 with gains of about 8%, by closing at 103.46 levels, and recording gains of more than 19%, by testing its highest level at 114.75 in September, the US dollar index (Dollar Index), which measures the dollar against a basket of currencies, opened the new year with gains of more than 1%.
Before returning and losing it in the second session of the year today, Wednesday, the fourth of January, amid sharp fluctuations in currency trading that we witnessed in the first sessions of the new year. The movements of the US dollar during the past year were based on the movements of the US Federal Reserve, which decided to fight high inflation, which reached its highest levels in 40 years, as the US Federal Reserve began to raise interest rates by a quarter of a basis point in March of last year, to turn to 50 basis points in May and follow.
Up by 75 basis points in June, July, September and November, reaching their highest levels since 2007.
The Consumer Price Index (CPI), which is concerned with measuring inflation in the United States of America, began to rise from 7% last January to reach peak levels in July, reaching 9.10%, before it began to decline and ended the year at levels of 7.1% in the last reading of the index in December to reflect a result.
It was done by the US Federal Reserve during the year and raised interest rates. The expectations of the members of the US Federal Reserve and the President of the US Federal Reserve, according to the last meeting of the bank on December 13-14, see that inflation is expected to decline in the current year 2023 and reach 3.1% by the end of the year, which is higher expectations compared to their expectations last September, which were at 2.8%, which means less optimistic Bank members for the new year and more pessimistic .
Estimates of futures markets from FedWatch, according to CME, see that the US Federal Reserve will raise interest rates by 25 basis points at its February 1 meeting, with expectations of up to 70%, and another quarter-point hike at the March meeting, to reach 5%, which is in line with the expectations of members The bank stated that there is an increase of 75 basis points in the current year due to the declining inflation reading since last July.
During the trading session today, Wednesday, in the American session, the markets are awaiting the results of the minutes of the Federal Reserve meeting on December 13-14 to find out a more detailed reading of the expectations of the committee members regarding interest rates and inflation in the new year, and whether we will witness levels higher than 5% for interest.
A large part of the US dollar’s movements since the opening of the markets yesterday, Tuesday, came in large proportion to the liquidity flows that began to enter the markets and build new positions at the beginning of the year after the markets’ holiday in the recent period.
The movements of the US Federal Reserve and inflation declines, if they continue, will also be the key to the new year for the movements of the US dollar, in addition to the US labor market figures that will be issued in the first week of every calendar month, and to what extent will the US Federal Reserve bear the rise in unemployment levels, which are at 3.7% now, which are levels Historic, especially since the bank’s expectations see unemployment rates at 4.6% in the current year.
So, between the decline in inflation and the expected rise in unemployment rates, the movements of the US dollar will be during the year, and accordingly, the process of building the position of investors will be.
It is not expected that the purchasing momentum of the US dollar will be as strong as last year, but we expect that the rise will continue until the end of the first quarter of this year until we witness stability in interest rates and talk begins about the date of the US interest rate cut, especially since the markets expect that we will witness a slowdown in the growth of the global economy.
02/11/2024
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