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US Dollar Retreats Ahead of Fed Decision, Recession Talk

December 18, 2018 at 16:43 by Andrew Moran

A USD bill sloping downwardsThe US dollar is retreating against some of its major rivals on Tuesday as traders wait for action from the Federal Reserve. There is also some new data out that is fueling talk of a recession, nearly one decade after the end of the last economic contraction. Still, the buck is on track for one of its best years.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) started their two-day monetary policy meeting on Tuesday. According to the CME Group FedWatch tool, it is almost certain that central bank will raise interest rates, the fourth time this year. But investors are waiting to see if the Fed will move ahead with its old plan of at least three rate hikes in 2019.

So far, because of tepid economic data, crumbling financial markets, and pushback from the White House, the market does not anticipate the same hawkish aggression next year. In other words, the Fed will not be as adamant for hiking rates as it was only a couple of months ago.

On the data front, US housing starts rose in November, but construction of single-family homes slumped. The Department of Commerce reported that housing starts jumped 3.2% to a seasonally adjusted annual rate of 1.256 million units last month, building permits advanced 5%, and single-family home construction numbers declined to an 18-month low.

If weakness in the housing market persists, then it could be signs of an economic slowdown.

New surveys reveal that many experts think the odds of a recession are rising. Results from a CNBC Fed Survey show that the chance of a recession in the next 12 months climbed to 23%. The poll also showed that 52% approve of President Donald Trump’s handling of the economy.

Moreover, a Duke University study found that nearly half (48.6%) of chief financial officers (CFOs) see a recession by the end of next year. Citing skills gap, government policy, and economic certainty, the economic outlook looks bleak.

The end is near for the near-decade-long burst of global economic growth. The US outlook has declined, and moreover the outlook is even worse in many other parts of the world, which will lead to softer demand for US goods.

The US Dollar Index tumbled 0.05% to 97.08; year-to-date, the currency is up more than 5%.

The USD/CAD currency pair rose 0.45% to 1.3468, from an opening of 1.3410, at 15:23 GMT on Tuesday. The EUR/USD advanced 0.17% to 1.1367, from an opening of 1.1349.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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