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Monthly wrap: USD: US dollar flounders despite rising tide of economic optimism

currency-newsMonthly wrap: USD: US dollar flounders despite rising tide of economic optimism
Key takeaways:
  • US dollar struggles to capitalise on rate hike optimism and a tightening labour market
  • Trump administration tariffs prompt anxiety in the markets
  • USD monthly highs: £0.72, €0.82, AU$1.29, NZ$1.38, C$1.29
  • USD monthly lows: £0.70, €0.79, AU$1.25, NZ$1.34, C$1.24
No matter the extent, or number of upbeat domestic data releases that the US received during the past month, the US dollar continued to struggle to find a proportionate and persistent rise in value.

Optimism in the US surged on a number of fronts, including the state of the labour market (which continued to tighten, with unemployment sitting at the 17-year low of 4.1%), the robust performance of the private sector, steadily accelerating levels of inflation (2.2% YoY Feb) and overarching business optimism on the back of recent sweeping tax reform measures.

All of these positive events, whilst pertinent, were quickly waylaid by factors such as the repeat US governmental shutdowns.

The second shutdown, whilst brief, hurt demand for the US dollar as various senior Republicans highlighted concerns over the sizable funding of the military and the widening US deficit.

Nonetheless, optimism steadily returned later into the month with USD investors pleased to hear US Federal Reserve Chair Jerome Powell’s assertion that ‘headwinds in the US economy’ have turned into ‘tailwinds’.

This optimism has translated broadly into hawkishness, with other Federal Reserve Presidents leaving hints that four rate hikes could be warranted this year, rather than the previously anticipated three.

Nonetheless, the accompanying rise in the US dollar has been repeatedly negated by market concerns regarding US President Donald Trump’s tariff measures; a 25% import tax on steel and a 10% tariff on aluminium, in an attempt to protect US industries.

These tariff measures - whilst potentially effective in securing fairer trade for the US - were met with global condemnation, with markets worried that the threat of a potential trade war with China and the EU could have dire consequences for the US economy.

This outlook continued to weigh on the performance of the ‘Greenback’, and with the March rate decision fast approaching, these two factors will likely continue to be the primary drivers for the US dollar.
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