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2017 has been a challenging year for the USD and the fourth quarter may also see some grey clouds too.
Despite this, traders still questioning whether there will be a silver lining for the currency.
With all the endless energy from Bulls and Bears where evidence of bottoming, bearish price action returned to punch prices down to new lows and with the same happening in opposite market trend, has been quite fascinating to watch.
Throughout Q3, we have had two different periods where the USD appeared to try to set some longer-term support. November saw the USD experience some hard-knocks, looking at the play from various angles or potential risks particularly from a geopolitical standpoint, but not entirely dominated by the bears as yet.
Below are some of the predictable factors that need to be considered when analysing the USD for the last quarter of the year:
The Trump Administration
The chaotic administration of US President Donald Trump, together with his sharp tongued, quick to pounce attitude, has seriously reduced confidence in the greenback whilst tarnishing global economic and political relationships globally.
Since his inauguration,Trump has started fights with one government after another, including allies like Australia and Germany. Most recently, Trump took the world to the brink of nuclear war by crossing swords with North Korean dictator Kim Jong-un.
The USD will continue to be challenged as the big question is whether investors globally will continue to put the trust in the currency of a country whose leader proudly provokes North Korea with threats of war, or will the global players find financial security somewhere else? A question that continues to patronize investors.
US Republican Tax Plan
Despite progress on tax reform and the prospect of a Federal Reserve rate hike in December, the U.S. dollar has struggled.
Here, the market may have caused the possibility of a rate hike to be priced in convincing the markets of an interest rates rise in December. Despite this, the most recent economic reports have been far from encouraging. Retail sales growth beat expectations but at 0.2% the increase was weak especially compared to the 1.9% rise
Inflation have been subdued while manufacturing activity in both the New York and Philadelphia regions pulled back, due to lower food and energy costs. In spite of these figures, the Federal Reserve could possibly still be reasonably focused on raising interest rates in December but they could lead to a more cautious guidance for 2019. Investors are worried about a ‘cautionary’ air surrounding interest rate decisions along with tax reform in order to justify reasons behind why the USD could be having trouble rallying despite the possibility of another rate hike.
Potential Risks of Nuclear War between America and North Korea
Based on what is thought to be the only strategic goal of the US, which is ‘denuclearization’, many seem to have been calling for the US and its allies to undertake crippling financial sanctions against North Korea
However, this mission of the US may bring about some practical problems which may include the collateral costs that would result in more imminent risks and threats to the U.S. strategic position in Asia, as well as a probable failure of the sanctions in achieving their goal.