With inflation now swamping the US stock market, and with Janet Yellen coming in and who has been hinting that the federal reserve is about to start raising interest rates, that will give the US dollar just the boost and the excuse it needs to pump itself higher in early 2017.
In fact back of the cocktail napkin notes by a very rich wall st trader. He did hint that the US dollar has a further upside of about 10% - 11% from the current levels we see today. This could occur in the next 12 months, and that is a very bold claim and quite incredible, but yet not surprising to some of the smarter analysts who have been projecting that the fed need to start hiking interest rates soon.
Let’s explain a bit more what exactly is happening on wall st, and why the US dollar has some nice upside potential. As you read this, the US dollar index is at 14 year highs. It’s been spurred on by the current US fiscal outlook and some of the economic policies. This has all been changed since Donald Trump won the US elections back in November 2016.
Some of Donald Trump’s Pro Growth policies, to pass through congress quite nicely, by March 2017 and that could mean this current Trump rally its second wind. We have already seen the fed hikes rates to 0.75% and next year there are another 3 rate hikes forecast. This is driven by strong jobs growth, and also a solid pick-up in inflation. That is the current trend that is likely to continue for about the next 12 months. So this is just another justified reason the US dollar is likely to go higher over the coming months.
We have seen a major impact on other currency markets. We cannot always predict the future, but it’s likely that the euro will break parity in 2017 and could fall as much as 0.98. That would have huge ramifications for countries like Europe.
On capital flow expectations from Europe to the US, it has to do with corporate tax cuts envisaged by the current Trump administration, which is likely to be cut to 15% in 2017.
There have also been some interesting developments with the ECB’s QE program. They continue to buy 80 billion Euro’s per month and that would likely to continue for a few more months.
So you can see, this is not just about predicting the US dollar is going to skyrocket because it already has. You can see certain aspects of the economy, the Appointment of Donald Trump in January of 2017, and the current policies being issued by the Federal Reserve all point to the US dollar rally continuing well into 2017.