U.S. Dollar Bounce and The Fed

Market participants continue to see exaggerated volatility and knee-jerk reactions to the most recent statement from the Federal Reserve. The U.S. dollar has been trading under extreme pressure for over six months. After reaching a high of 104 on the dollar index during the last few months of 2016, it has been consistently moving to lower pricing throughout the first half of this year. This morning, the dollar hit a new intraday low for the year when it traded to 93.00. After hitting a 14-month low, the U.S. dollar has recovered. As of 4 o’clock EDT, it is trading up almost 3/10 of a percent at 93.78.

These extreme price gyrations in the U.S. dollar has certainly played a significant role in the volatility seen over the last few days in both gold and silver. According to the Kitco Gold Index (KGX), physical or spot gold is currently trading up by about $0.60 on the day at $1260.70. Upon closer inspection, it is a strengthening U.S. dollar that accounts for $-$6.55 in value. It is buyers bidding up the precious yellow metal by $7.15.

 Yesterday’s statement released by the Federal Reserve offered no new insight as to the timeline to normalization. There was also no further information into whether they will raise the Federal Funds rate again this year. Yesterday’s statement did reveal that interest rates will be left where they are, at least for now. They also spoke about the onset of asset liquidation, as they begin to unwind their $4.5 trillion portfolio in a process they term normalization. Although no timeline has been given, the initiation of this process will begin relatively soon.

According to Carl Tannenbaum, chief economist at Northern Trust Corp. in Chicago, in an interview with Bloomberg News, “I expect an announcement of the onset of the balance-sheet reduction at the conclusion of the September meeting, effective on the first of October.”

Initially, it appeared the Fed statement released yesterday contained a more dovish tone than previous statements. The more dovish undertones continued to weigh heavily on the U.S. dollar moving it to the lowest point of 2017 when the index touched 93.00. That initial knee-jerk reaction seems to have subsided as the pendulum moves back towards the middle.

Wishing you as always, good trading,