Dollar between fears of deficit and inflation

Dollar between fears of deficit and inflation

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The dollar steadied last week after pulling ahead from a three-year low against currency basket , though it was dogged by growing concerns a ballooning fiscal deficit in the united states could disrupt the economy and currency expectations.
The dollar index, which tracks the performance of the US currency versus six major rival currencies, was 89.347, up 1.2% from the three-year low of 88.251 on 16/2/2018, after continuing the loss of the dollar a few days ago. Its index fell against a basket of six major currencies to 88.253, the lowest level since December 2014, recording a loss of 2%, the biggest decline since February 2016.

Against the yen , the dollar traded at 106.77 Yen , up 0.2 percent after recovering from a 15-month low of 105.545 on February 16, 2018.

The euro fell 0.2% to $ 1.2387, backing down from a three-year high of $ 1.2556.
The Swiss currency recorded 0.9190 francs to the dollar, the highest since June 2015.
The decline in the dollar in recent months due to the dissipation of several factors driving towards the downward, the impact of the positive momentum resulting from the rise in US interest rates, while the US currency has been affected by several factors this year, including fears that Washington may pursue a strategy  based on  the weakness of  dollar, and   eat the dollar’s yield advantages  with a trend of other countries to gradually return from the monetary easing policy.
The dollar’s slide and a 15-month low against the yen is negatively reflected on the impact of the rise of a 10-year US Treasury bonds to the highest level in four years.
Analysts are having trouble explaining the large-scale decline in the dollar, which came despite a 3% rise in yields of Treasury bonds and the rise in equity and commodity markets.
The decline in the dollar is difficult to explain by global markets, as Treasury yields have risen and financial stimulus has been injected into the US economy.
Inflation expectations rose in all sectors, as the Federal Reserve Board showed no hesitation in tightening the monetary position.

Expectations indicate to the budget deficit, trade protectionism, and policy in Washington and hawkish central banks around the world are likely to push the US dollar to the decline.

With growing concerns about a US budget deficit that could undermine the US currency, experts believe inflation could reach more than $ 1 trillion in 2019 as government spending increases and the huge decline of corporate tax.

Shatha Khalil *
Economic Studies Unit
Rawabet Center for Research and Strategic Studies