THE PROMISING OUTLOOK FOR THE US DOLLAR
The US economy has expanded steadily, and this is reflected in economic data showing stronger fundamentals and an optimistic outlook that supports the Federal Reserve’s monetary policy. US inflation rose from 2.8% in May to 2.9% in June, and the ISM non-manufacturing index also increased from 58.6 in May to 59.1 in June, reflecting an expansion in the service sector. But some US economic data is going against the trend. US non-farm payrolls dropped from 244k positions in May to 213k positions in July, and the US unemployment rate rose from 3.8% in May to 4% in June. Apart from the economic data, the policies of authorities such as the US government and the Fed are driving the US market. For example, the trade protectionism of President Donald Trump is a critical issue that could have a tremendous impact on the structure of the US economy. Another major issue is the Fed’s monetary policy. At its June meeting, the Federal Open Market Committee raised the federal funds rate from
1.75% to 2%. The committee also guides monetary policy trends by communicating with the market from time to time.
Last Tuesday and Wednesday, Fed chairman Jerome Powell gave testimony in which he assured the market that the Fed would gradually raise interest rates “for now”. He voiced optimism about the US economy because unemployment is close to an 18-year low and inflation is close to the Fed’s 2% target. He said officials would soon resume technical discussions that could determine when the Fed will stop shrinking its holdings of $4.3 trillion in bonds and other assets. Moreover, Mr Powell expressed concern about trade barriers between the US and its trading partners, as protectionism could potentially harm economic growth.
Although the outlook for the US economy seems promising, investors should be cautious because the situation could easily change in the future.
Pansak Chokchoaroj is a senior dealer in Bangkok Bank’s treasury division.