Dollar Bulls Lose Big With Fed Language

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By Jacob Maslow

dollar and yuanNow that the US Federal Reserve has spoken and it appears that they are holding off on any interest rate hike soon, the US dollar promptly plunged. This should be expected, considering the huge amount of money that dollar bulls have been betting on the dollar. Traders who are aggressive on the dollar were betting that the US Federal Reserve will issue language that would indicate that interest rates will be going up sooner rather than later in the United States. Since this didn’t take place, the dollar has taken quite a bit of a hit.

Chances are this would be a temporary setback. If those dollar bulls who have been playing the dollar long had a longer timeline, they should be OK. Expect a lot of profit-taking, but don’t expect the larger long-term picture for the US dollar to change anytime soon. First of all the dollar is a store of value just like commodities. When commodities, ranging from gold to petroleum are depressed, this pushes investors to store their assets in the form of dollars.

The reality is that the fundamentals in place haven’t really changed all that much.

In fact, it didn’t change at all. The Bank of Japan and the European central bank are still devaluing their currencies. The global economy is still weak. And the US economy is one of the few bright spots in the global economic scene. Put all these factors together and it would be a surprise not to see the US dollar appreciate even further. When it comes to foreign exchange, currencies are valued based on comparative value. Based on this measure, the dollar is the strongest player in the game… so far.

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