US Dollar a Bastion of Strength After Christopher Waller's Calm Speech


Yesterday was a day that many corporate giants and private individuals across the United States had been waiting for, as it was the day during which Federal Reserve Bank governor Christopher Waller gave an official speech in the public domain regarding the possibilities of the United States economy reaching a point at which it can sustain an inflation rate of 2%.

Monetary policymakers within the United States had set themselves a target of driving down the rampant inflation the country experienced approximately two years ago to a sufficient level that it would reach 2% and remain at a steady 2% for the longer term.

Until yesterday's speech by Mr Waller, there was no tangible information from the Federal Reserve relating to how achievable this target would be. However, companies and investors alike may well have continued to tread a cautious route because of the continual interest rate rises the Federal Reserve had implemented over the course of last year despite inflation continuing to decrease.

This ultra-conservative monetary policy is not exclusive to the United States, of course. The European Central Bank and the Bank of England, both central banks which are responsible for the monetary policy of financial jurisdictions with equally important economies which are home to major currencies, had implemented comparatively strict measures to combat inflation by curbing spending with higher interest rates.

Another symptom of these rate rises alongside high inflation figures is that it increases the amount that private individuals and companies have to pay each month to cover their existing borrowing. This is a very important factor because if the proposed rate cuts take place this year on both sides of the Atlantic, more capital will likely be available from the same revenue figures, allowing companies to invest in growth or to report higher profits due to the lower operating costs compared to the past two years.

The Federal Reserve's Mr Waller's outlook yesterday was calm and positive as he stated that there were two major areas which had shown progress, those being the inflation becoming more controlled whilst working toward that 2% goal and that he had little concern with regard to the increased costs in the labour market, in which the job vacancy rate fell from around 7.5 per cent to 5.3 per cent due to the tightening of the monetary policy, with the unemployment figure standing at around 3.7%.

Mr. Waller cited the circumstance that took place earlier this decade when a 'dearth of individuals' were looking for jobs. However, that appears to have subsided but at a cost as wage inflation has driven up the cost of salaries – average hourly earnings rose by 0.4% in December last year, consistent with that of November, showing a continued increase.

Overall, Mr Waller stated that he is confident that the Federal Reserve's target of achieving a 2% sustainable inflation rate is achievable, giving rise to a confident stance by investors in the US markets.

Indicative pricing only

During the early hours of the morning on January 17, FXOpen charts showed that the rise of the US dollar against majors was evident. At 3.30 am UK time, the GBP/USD pair was trading at 1.26226, whereas just a day ago, on January 16, GBP/USD was in the 1.27 range.

The US dollar has trodden a strong path for a few years and has shrugged off some remarkably difficult events, beginning with the stringent lockdowns which were implemented in some coastal states during 2020 and 2021, followed by rampant double-figure inflation during 2021 and 2022, and the high profile collapse of some large banking institutions in 2023 which demonstrated that despite higher levels of regulation being invoked at the beginning of the 2010s following the 2008-2009 financial crisis, it is still possible to experience large banks vanishing under US stewardship.

Despite these serious matters, the US dollar has held its position and remains as strong as ever. Let's see if the inflation target of 2% becomes a reality and if it can be sustained.

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