This year, the dollar has moved up significantly against other currency pairs. It peaked in August when it rose by 5.66%. After that, the dollar has lost some of its gains. YTD, it has gained by 3.0%. The reason for the dollar’s gain was the hawkish nature of the Federal Reserve, which was boosted by the strong economy. The Fed is expected to hike rates later this month. There are also chances that they may hike in December this year.
There are a few reasons that suggest that the dollar rally has ended. First, the Q2 GDP rose by 4.2%. This was the fastest growth since 2014. This growth may not continue and traders expect it to rose by a smaller rate in the third quarter. Second, other central banks are starting to talk about tightening. Yesterday, the BOE promised to continue gradual tightening while the ECB is expected to start tightening in 2019. In the second quarter, Japan’s economy expanded by 3.0% which is an indication that the BOJ could start tightening as well. The rumours of tightening by other banks is likely to push the other currencies higher than the dollar.
The dollar index has reached at 94.06. This is the lowest level since the end of July. The RSI has reached at 35 while the crossover of the 21 and 14-day Simple Moving Average shows that the currency’s downward momentum could be peaking up.