Us Dollar Depreciates

The US dollar dropped sharply during March and April on doubts about whether the US economy can expand enough to justify further significant rate hikes. Monetary policy was kept unchanged late last month, as expected, but a probability of over 30% is attached to a rate increase in June. The April decision to hold rates came a day before news that the US economy expanded by only 0.5% (q-o-q annualised) in Q1, its slowest pace in two years. Growth was held back by a slowdown in household consumption and exports, which have been undermined by US dollar strength, as well as a drag from inventory liquidation. Yet, while confidence in the US outlook has dimmed, most observers expect the recovery to accelerate from its current weak level.. The 2014- 2015 surge in the US dollar seems to be passed a peak, which should ease concerns about export competitiveness. In addition, despite a drop in productivity, solid employment and lower energy costs should provide support to household consumption.

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