The dollar is likely to reap the benefit of the West's uncertainty
Currency traders are having trouble deciding which of the world's major Western economies is in the worst shape. They have been selling the U.S. dollar, euro and British pound intermittently as various central banks signal their next steps.
- Traders sold the euro and bought the dollar after the European Central Bank lowered its euro zone growth forecast and announced it would resume its TLTRO stimulus program on March 7.
- They sold the dollar after the Fed cut its U.S. growth forecast and announced further rate hikes this year were unlikely on Wednesday.
- Yesterday, traders sold the British pound after the Bank of England kept rates on hold and May's latest Brexit deal was rejected, raising the chances of a no-deal divorce from the EU. It was sterling's worst day against the dollar this year.
However, none of the moves have stuck. Sterling reversed most of its more than 1% loss from Thursday overnight after news of the EU's Brexit extension.
What's next? Analysts tell Axios they largely expect the dollar to reap the benefit of uncertainty as the U.S. has higher interest rates than most major economies, which means traders benefit from the "carry trade" by holding it.
- The dollar's rate against the euro and pound make up nearly 70% of the dollar index's value.
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