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Dollar Fluctuates as Expectations of Fed Rate Hikes Loom

On Monday, the US dollar slumped and rose severally against major currencies as investors become increasingly uncertain of the timing of the expected interest rate hikes. Worrisome performance of the corporate sector in China and anticipation of U.S. non-farm payroll data expected this week has also contributed to a decline of the dollar.  

Dollar Fluctuates as Expectations of Fed Rate Hikes Loom 

William Dudley of the New York Federal Reserve said on Monday that the Fed is committed to an interest rate hike by the end of this year. US Federal Chair, Janet Yellen, also affirmed that rate hikes would be implemented in the few coming months.

US economic data for August indicates that personal income increased by 0.3 percent while expenditure slumped by 0.4 percent. The increase in consumer spending was better than expected, supporting the anticipation for a rate hike before the end of the year.

Risk aversion drives trade

Wall Street indexes declined by more than 2 percent against falling profits in China’s industrial firms, which saw US shares of raw material and energy companies decline further.

Analysts indicate that the markets are presently being driven by risk aversion. More traders are expected to start buying the yen, if later this week data continues to show signs of a weak Chinese economy.

Turning to the yen 

Traditionally, the yen has provided investors a safe haven and it gains in times of financial instability. The same goes for the Swiss Franc. Monday, the dollar declined 0.4 percent against the Swiss franc, while the yen gained  up to 4 percent against the dollar as China intensifies its economic slowdown.

Traders will also be keenly looking at US job data to be released on Friday for affirmation that the Fed will increase rates. Positive results from the data would boost expectations of a hike, according to some market analysts.

The US dollar is likely to gain as anticipation for an interest rate hike is actualized, although the implications on investor sentiments are largely unclear yet.

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