26.02.201813:58 Forex Analysis & Reviews: The growth of the dollar is still holding back

The week in the foreign exchange market ended positively for the US dollar as a whole, but, despite this, the dynamics of the dollar index for a month remains inexpressive and is characterized by a lateral movement.

This behavior of the US currency is explained by two important and strong trends, which, on the one hand, support it, and on the other, have a negative impact.

The positive for the dollar is the desire of the Fed to further raise interest rates. It is likely that this process will even accelerate from the expected three increases to four this year. An additional positive factor is the growth of yields on US Treasury bonds, as well as the ongoing process of reducing the Fed's balance sheet, which began last fall.

The negative for the US currency is still the unwillingness of market players to accept the fact that the Fed's monetary policy is steadily changing. Markets still hope that the regulator will slowly raise interest rates, which by historical standards will long remain at low levels. Another negative, however, external character, is the expectation of investors that the world's largest central banks, and, in the first place, the question of the ECB and the Bank of England, will continue this year to eliminate incentive measures and raise interest rates.

This is most clearly seen in the currency pair of British pound / US dollar. Despite the weak data on GDP for the fourth quarter of 2018, 1.4% versus 1.5% and unemployment growth to 4.4% from 4.3%, the sterling is confidently opposed to the dollar. Again, even the uncertainty surrounding the UK exit process from the EU can not exert a noticeable pressure on it. This behavior of the British currency can be explained, on the one hand, by its objective undervaluation, and on the other hand, the understanding that in the end this will all end, but the local regulator will not be able to ignore the inflation growth, which means the continuation of the cycle of raising interest rates.

Assessing this situation, we can say that, most likely, the strengthening of the dollar will be restrained before the Fed's meeting on monetary policy in March.

Forecast of the day:

The EUR / USD currency pair is consolidating in the range of 1.2275-1.2350 in anticipation of the speech of ECB President M. Draghi, from which signals for the termination of incentive measures are expected in September of this year. If such a signal follows, albeit insignificant, it can support the pair and allow it to grow to 1.2400 after crossing the mark of 1.2350.

The GBP / USD currency pair is trading under the resistance line in anticipation of Brexit's news. The pair is also supported by the weakening of the dollar due to investors' hopes that J. Powell, the new head of the Fed, will not dare actively raise interest rates. On this wave, if the price crosses 1.4065, the pair may rise to 1.4145.