USD: dollar loses ground but interest rate rise speculation continues

The US dollar lost ground yesterday after three consecutive days of gains. Investors seemed keen to close out their positions hence the slight weakening, but there is some positivity on the horizon, as Donald Trump looks to make some sweeping reforms to US taxation policy. However, there is some concern that the dollar will be pegged back by the fact it is revolving around the highs of recent trading ranges,

The proposed overhaul Trump outlined on Wednesday could face some stiff opposition from Democrats and Republicans and it is important to note that nothing fundamental has changed. But, as we have seen many times, sometimes an expressed sentiment is enough to make currencies move. It will be interesting to see whether Trump is able to implement the tax changes in the future.

Speculation around a US interest rate rise in December is arguably exerting greater influence on the market. The probability of another rate hike from the Federal Reserve is very much on the up according to the markets. This is supported by good short-term US data and US financial markets being at record highs.

On the data front, US GDP came out better than expected, up 0.1% to 3.1% against an expectation of 3%. Meanwhile, unemployment claims came out slightly worse than expected at 272,000. The figure was expected to come in at 270,000 so the difference is negligible and had little bearing on the market.

There isn’t much on the data front today, but the Federal Open Market Committee member Patrick T. Harker is due to speak later. He will be watched closely for any further interest rate hike speculation.

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