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Why Central Banks Will Send The Dollar Lower In The Coming Months


  • Interest rate differentials are bullish for the dollar, but it is going lower.
  • The ECB is about to copy the Fed, again.
  • The ascent of the dollar started with news of tapering.
  • A similar move in the euro would take the dollar index through critical technical support.
  • Commodities should be the biggest beneficiaries of a lower dollar, maybe.

The global financial crisis of 2008 turned the central banks of the world from bankers to firefighters. The alarm bells rang in the halls of the world’s central banks and monetary authorities as the housing and mortgage-backed securities crisis in the United States and the sovereign debt crisis in Europe increased the prospects of global recession or even depression. The U.S. Fed led by Chairman Bernanke, a student of the Great Depression in the 1930s, dug deep into his monetary toolbox as the Fed slashed interest rates and introduced a program of quantitative easing, or repurchasing debt and putting in on the balance sheet of the central bank. These tools served to stimulate the economy by inhibiting saving and encouraging borrowing and spending. QE and low rates added mountains of liquidity to global financial markets, and the European Central Bank followed the U.S.

In 2014, as U.S. economic data was showing signs of stability and moderate growth the Fed announced it would taper its QE program and provided guidance that the end of a zero interest rate environment was nearing. The prospect of higher short-term rates caused the dollar to take off to the upside as the dollar index rallied by over 27% from May 2014 to March 2015. Since then, the Fed has been increasing the Fed Funds rate gradually, and it now stands at 1.25%. At their most recent June meeting, Chairperson Janet Yellen told markets that rates would likely rise by 25 basis points more by the end of 2017, and there will be as many as three more 25 point increases in the Fed Funds rate in 2018. Moreover, the Fed will begin to unwind the legacy of QE, allowing $50 billion to roll off their balance sheet each month. The rate hikes and plans to trim the balance sheet reflect the most hawkish monetary policy by the Fed in more

This article was written by

Andrew Hecht profile picture
Weekly commodities commentary and calls, from a Wall Street veteran
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.

Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.

Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.

Today, Andy remains in close contact with sources around the world and his network of traders.

“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”

His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.

Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website about.com and blogs on his own site dynamiccommodities.com. He is a frequent contributor on Stock News- https://stocknews.com/authors/?author=andrew-hecht

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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