The USD had a rough week last week following the Federal Reserve’s decision to increase its interest rate, which proved to be surprising for many. After all, increasing interest rates at the central banks that oversee currency will generally lead to gains in the currency represented by the bank. So, what happened, why did the USD have a negative reaction, and what should binary options traders be watching for ahead? Well, I’ll do my best to answer all of those questions below.
What Happened Just Before The USD Took A Dive?
As mentioned above, last week definitely wasn’t the best week for the USD. In fact, the currency took a dive in value. The declines started on Wednesday, just after the Federal Reserve announced yet another rate hike. This time, the US Fed’s interest rate was increased from 0.75% to 1.00%. However, increasing the interest rate wasn’t the only thing that the Federal Reserve actually did. In fact, the statements made by the Fed in this announcement seemed to be more important than the interest rate increase itself.
When Janet Yellen took the stage to speak about the Fed’s decision to increase its interest rate, investors expected that the interest rate would be larger, or that the tone would be more hawkish. That didn’t prove to be the case. In fact, Yellen explained that while the economy is improving at the moment, we’re in very uncertain times. In particular, she pointed to President Trump’s plan, explaining that a wait and see approach is necessary, and therefore, the Fed would be taking that approach with regard to monetary policy moving forward.
So, Why Did The USD Fall?
Well, this is where things get interesting. You see, usually increasing interest increases the demand for the currency, causing the currency to gain in value. However, that’s not what happened last week when the United States Federal Reserve increased its interest rates. In fact, the currency took a bit of a dive! The reason for this is relatively simple to understand.
You see, investors expected to see a larger interest rate increase and more hawkish statements from the Federal Reserve. As a result, the value of the USD had been edging upward leading up to this announcement as investors prepared for what they expected would happen. While the interest rate was increased, it wasn’t increased by much, and statements from the Federal Reserve Chair, Janet Yellen, didn’t suggest that the pace at which rates were increasing would speed up. As a result, the demand for the USD started to fall as investors pulled their positions.
What Binary Options Traders Should Be Watching For Ahead
While the drastic declines we saw last week in the USD appear to be over at this point, the currency is known for creating compelling and profitable opportunities for binary options traders. However, if you want to turn these opportunities into profits, you’ll need to keep a close eye on the news that moves the currency. In particular, pay attention to the United States Federal Reserve, with more rate hikes expected this year, the Fed is likely to be a primary topic of conversation and driver of movement. On top of that, pay attention to any economic data coming out of the United States. After all, a currency is only as strong as the economy it represents. Finally, watch Donald Trump closely. The President has explained that the USD needs to fall in value, and while that’s in stark contrast to what the Fed wants to see, if anyone could make it happen, it’s President Trump.
What Do You Think?
Where do you think the USD is headed moving forward? Join the discussion in the comments below!