The US Federal Reserved wound down its economic stimulus packaged known as quantitative easing or QE3 for short. The ‘3’ stands for the third installment of such a measure which resulted in the Federal Reserve printing money day and night. As you may recall, the more supply the lower the value which means the more US Dollars the US Federal Reserve prints the less valuable the US Dollar becomes. Then there is this thing called reserve currency which artificially boosts demand and forces other countries to use the US currency.
As you can see by any chart about the US Dollar the greenback, as it is often called for the green color of its bills, has performed rather well taken all else in account amid speculation that sometime in the second-half of 2015 the US Federal Reserve will increase interest rates by 25 basis points from 0.25% to 0.50%. Those who will sit back and thing about this for a moment will realize that it makes no sense. Do you really want to hold US Dollars based on that?
The obvious answer should be no. Looking at economic data the US economy prints mixed figures with the biggest two illusions of strength, thanks to financial engineering, coming in the monthly labor reports as well as quarterly GDP figures. Those two reports together with inflation reports and US Federal Reserve announcement are the biggest drivers for the US currency. The GDP figures paint one economic picture while the majority of US consumers, the backbone of the US economy, paint an opposite one.
Financial data can be engineered to a great length, but consumer spending can’t be fabricated. Strong GDP figure which are not backed by strong consumer spending do not add up. The same holds true for the labor reports. Headline figures above 200,000 are meaningless if the quality of labor is not there. The majority of jobs created are either low paying or part-time jobs while the majority of job losses were high quality jobs. This means that the general American consumer can barely survive let alone support economic expansion.
The latest spending data from both the GDP report as well as personal spending showed dismal figures. The most recent contraction in personal spending could be an early sigh for a terrible holiday shopping season. Overall the current level of the US Dollar is not warranted and while this exuberance may last through the end of 2014 reality will replace the current illusion which means forex traders will adjust their positions.