March 5, 2018 — US Dollar Poised to Strengthen


The ICE Dollar Index rose 1.7 percent in February, it’s the first monthly gain seen since October 2017.  The recovery in currency is expected to continue as the economic forecast remains upbeat.  The Dollar Index fell almost 10 percent last year, and now it looks like sentiment has turned.

US economic data continues to improve on all fronts, as US consumer confidence hit a 17-year high in February. Higher interest rates are on the horizon, with three rate hikes built into the market.  Fed Chair Powell has stated in front of Congress, with the strengthening economic growth and inflation, policy makers may rethink their plans for three rate increases and step up the pace of tightening.  Bloomberg estimates the likelihood of four hikes in 2018 has risen to 34 percent.  Each hike is expected to be 25-basis-points, so an additional quarter-point rise is really not that material.

As you review your interest rate hedging strategies, it would also be an opportune time to review your currency positions. The US Dollar Index regained strength and started this month on a stronger note amid the improved market sentiment.  If you have f/x obligations consider the possible consequences of fluctuations in the value of the dollar and how it will impact your business.