When there is a large degree of uncertainty among investors with regards to the decisions of policymakers, then it is usually noticed that they go for safe investments. It is generally a way to ensure that their capital remains intact while the uncertainty blows over and more often than not, the United States dollar is regarded as the safest haven in this regard. The dollar has gained consistently over the course of the year so far as uncertainties pertaining to the United States-China trade war and the rate cuts by central banks have managed to create a tough investment environment. On Monday, investors seemed to send a message through the foreign exchange markets that they are going to wait and see how the central banks are going to ease their policy.
The European Central Bank is going to meet on Monday and later on in the month, and the United States Federal Reserve is going to have its own set of meetings. Rising tensions in the Middle East, as well as uncertainties with regards to rate cuts, have led to considerable strengthening of the dollar, as the Euro traded at $1.12 against it today. Investors had been looking forward to a rate cut by 50 basis points by the Federal Reserve, and their expectations were heightened after the New York Fed chief John Williams recommended such a cut. However, a spokesperson at the Fed shot down the optimism by stating that those comments had nothing to with actual policies.
Stephen Gallo, who is a strategist at BMO Capital Markets, said that the moves by the central banks are going to have an effect on the currencies this time. He said, “FX markets don’t tend to get too excited about monetary policy when it’s all nuance and forward guidance, but when central banks are making actual rate moves and QE adjustments, monetary policy becomes the driving theme.” It remains to be seen how the foreign exchange markets behave over the next week or so as the US Federal Reserve readies for its meet in the last two days of the month.