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Much has changed in the last year, but one thing remained the same, and it is that messages about monetary policy are major driving forces for the currencies, especially when the central bank is preparing to make a significant change of policy.
Everyone expects the Fed to raise rates, but what will be the reaction of the US dollar?
In general lifting of interest rates is positive for the currency, but in this case the US dollar has reached record levels. When the Fed last raised interest rates, there was a short continuation of growth of the dollar, followed then by a sharp turnaround, as USD/JPY from 123.57 reached 116 within a month and to 111 in just two months. Back then the chance of lifting interest was estimated at 75%, while now it is 100%.
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