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What are the Factors to Underpin Dollar?

iconNov 17, 2016 16:50
Three main factors are keeping the U.S. dollar strong, said Brown Brothers Harriman.

UNITED STATES November 17 2016 10:15 AM

NEW YORK (Scrap Register): Three main factors are keeping the U.S. dollar strong, said Brown Brothers Harriman.
The first is the likely December Fed hike. Prior to the election, the market was assessing around a two-thirds chance. Now both the CME and Bloomberg's WIRP estimate the odds above 90%. Investors have also increased the anticipated path of the Fed next year as well. 
Second, the incoming U.S. administration has promised significant fiscal stimulus. Of course, there is more unknown than known at this juncture. However, it does seem that some measure of fiscal stimulus will be forthcoming.
A third factor is the rise of the populist right. Europe is particularly vulnerable, BBH added.
“The calendar is not particularly kind, with the Italian referendum and Austrian presidential (do-over) election in early December. The Dutch go the polls in early spring. These events are like a dress rehearsal for the French presidential election….The combination of these considerations and market positioning helps explains the persistence of some of the moves in the capital markets, including the strength of the dollar,” said analysts at BBH. 
The euro has hit its lowest level of the year against the U.S. currency, falling as far as $1.06877 so far Wednesday. Moves in the greenback are closely monitored by metals traders since the precious and base complex alike often move inversely to the dollar.

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