US Dollar Probes Session Highs in Wake of Consumer Confidence Data released last week by The Conference Board of Business Growth and Markets. It paints a grim picture of the US economy. USD is on a soft incline, likely to slow further as Federal Reserve Bank of America (FDIC) keep buying US Dollar. The slowing of US Dollar means lower investment return, less foreign investors’ confidence in US Dollar, higher risk of inflation and slower business activity. Worse is that the US economy will be weighed down with heavy debt, less capital formation and high inflation.
Consumer Confidence Survey says, “The current state of the US economy is presenting a medium-level of risks to its growth.” “While the economy was growing, albeit slowly, the risks have mounted over the recent past,” it said. Consumer Confidence Survey also points that a weak jobs report, higher interest rates and oil prices have reduced consumer confidence. However, these worries will not materialize because the US Federal Reserve will keep buying US Dollar to stoke up consumer confidence.
The economists say that the US economy has the potential to grow only if “fiscal policy is liberalized and monetary policy accommodates the expansion.” This way, the dollar will be able to float higher in any market condition. “The rise in US Dollar may stall or reverse during the past few months,” The Conference Board added. The slowing down of the US economy will not affect the export sector and will only indirectly impact on import. So, no major effect is expected this quarter, although it is clear that the market is waiting for the release of Consumer Confidence Survey, which is expected to show higher readings in US.
Consumer Confidence Survey is done by The Conference Board of Business and Economic Research. The survey shows that consumer confidence has been slowly ebbing off since the end of last year. In the wake of US Dollar plunging, consumer confidence dipped notably to its lowest levels in past seven decades. Consumer confidence is closely associated with indicators of economic health. It is important for all investors to wait for the Consumer Confidence Survey results to get an indication of the health of the US economy.
“Although the reports do point to some weakening of the US economy, it does point to a strengthening of the US dollar,” says Jim Rogers, Director of Investors Research at Standard Bank. “US interest rates are still quite low, which bodes well for exports and imports. The latest reports indicate that industrial production rebounded in the third quarter of this year, which bodes well for the national economy.” He further adds, “The reports indicate that we are nearing the end of the current global economic slowdown and the easing of financial constraints is expected to continue next year. In addition, the reports point out that there should be some more rate cuts in U.S. Treasury bonds due to high levels of demand on the debt that is being financed by the federal government.”
“The Federal Reserve kept its interest rates near record lows and signaled that it might keep that rate at historical lows for quite some time yet. This will obviously help exporters and other buyers of dollars to acquire dollars at lower interest rates and higher price levels,” says Rogers. “USD/JPY (the pair of currencies) has appreciated sharply versus other major currencies due to the low base interest rates and easy availability of credit to all potential buyers. The Federal Reserve will keep its short term interest rates around 7% on balance, which is a normal range.”
“The Consumer Confidence Survey data indicates that US consumers have a lot of doubts regarding the health of the economy and its prospects in the future. However, US consumers are still optimistic about the outlook for the fourth quarter of the year,” adds Rogers. “It would seem that US consumers have been very pleased with the performance of the US economy so far, despite the recent global economic downturn,” he continues. “The Consumer Confidence Survey also indicates that doubts about the health of the US economy are widespread but remain widespread, especially concerning oil prices and the possibility of a US recession.” “So it looks as if US consumers do not believe that the US economy is in a recession but rather they are very optimistic about the outlook for the economy.”
“The dollar index is showing very strong gains against many different major indices including the Swiss franc, Canadian dollar and the Australian dollar. In addition, the euro is also increasing in value against most other major currencies. It should be noted that this kind of market flux is unprecedented during a recovery period like the one we are currently experiencing,” says Rogers. The US dollar index is indicating very highs in the wake of consumer confidence data