NewA million reasons why US dollar still a good bet
Given attractive yields on the greenback and the strong progress of the US economy, investors' buying of the currency is expected to persist
The US dollar should continue to rise, if at a slower pace, even though the Federal Reserve, while giving itself the optifon to raise interest rates, may choose to do so more slowly and perhaps go less high than markets had expected, and had been positioned for, before Wednesday's policy statement.
While dropping reference to the word "patient", thus opening the way for a rate increase, the Fed also dialled back on its projections for economic growth and inflation, indicating the central bank sees no reasons to raise rates as a matter of urgency.
"Just because we removed the word 'patient' from the statement doesn't mean we're going to be impatient" to raise rates, said Fed chairman Janet Yellen, who later also alluded to the gains in the dollar as both having a "transitory" negative impact on US inflation and, partially, occasioning weaker export growth for the country.
The net result was that markets, which were heavily long of dollars into the Fed's policy decision, had to run for cover, but the fundamental arguments in favour of the dollar remain.
Firstly, it is worth pondering what the Fed said about the dollar.
By saying the strength of the dollar, at least in the short term, is bearing down on inflation, the Fed is saying the greenback is doing some of their job for them and so helping push back the moment when the central bank actually raises rates.