The US dollar has started to strengthen slightly, even as the Federal Reserve has announced a cautious tightening of its monetary policy. The Fed has once again said that inflation is temporary, so there is no need to rush to tighten the monetary screws.
While smaller-country central banks are gradually tightening their monetary policy, there is still some comfort at the Federal Reserve or the European Central Bank. While the US Fed announced on Wednesday that it would gradually dampen its bond and mortgage-bond-buying program, it will not raise interest rates in the coming months.
The report, which was originally taken with mild pessimism by the markets, is now being assessed as actually relatively good. This is in light of the announcement by Christine Lagarde, the Head of the European Central Bank, that the ECB will not raise interest rates until October next year.
Thus, the US dollar is suddenly a currency that is attractive and has reversed the downward trend. Dollar assets are perceived by investors as both more profitable and reliable than assets such as euro or pound assets. It is the pound that has lost slightly, because even the Bank of England thinks there is no need to rush into fighting inflation.
