The US dollar fell against most of its major counterparts (though not against the very weak Great Britain pound) on Monday, though analysts kept the bullish outlook for the greenback over the longer term due to prospects for faster pace of interest rate hikes this year.
The dollar has entered a period of consolidation by the end of 2016 following the impressive rally triggered by the victory of Donald Trump in the US presidential elections. Yet most experts were still bullish on the currency, especially after the Federal Reserve upgraded monetary policy projections to three rate hikes this year from two hikes in the previous forecasts.
Talking about monetary policy, Boston Fed President Eric Rosengren called today for faster pace of interest rate increases:
I expect that appropriate monetary policy will need to normalize more quickly than over the past year.
He warned that inflation may exceed the central bank’s target otherwise:
Without further gradual increases in interest rates, one might be concerned that the unemployment rate could drift below its long-run sustainable level — and as a result, inflation could eventually exceed the Fed’s 2 per cent target. The stance of monetary policy will need to adjust — to prevent the economy from dramatically overshooting on both elements of the dual mandate, which would place the economic recovery at risk.
Other policy makers that were commenting on the Fed policy earlier were more cautious, saying that Fed’s policy plans are subject to change, though even dovish Fed members expect at least two hikes in 2017.
EUR/USD rallied from 1.0529 to 1.0565 as of 17:40 GMT today. USD/JPY dropped from 117.00 to 116.24. USD/CHF declined from 1.0169 to 1.0157.
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