According to analysts from Brown Brother Harriman, the level of the USD is not that important for the Federal Reserve.
Key Quotes:
“Investors and policymakers continue to wrestle with the economic impact of the dollar’s rise. The Federal Reserve has argued that the dollar’s appreciation acts as a headwind on exports and dampens imported inflation.”
“Fed officials have a nuanced understanding of the dollar. On one hand, the share of exports in the US economy are less than half of Germany’s for example, and much of what the US imports is invoiced in dollars, the greenback’s exchange rate is not often a particularly important variable in the policy-making equation.”
“On the other hand, Fed officials argue that impact of the dollar’s rise is transitory. By that, officials direct investors’ attention to the rate of change. The economic is largely driven by the pace of change, not the level. The level may not be transitory, but the rate of change is unlikely to be sustained.”
“Of course, the March FOMC meeting is still more than a month away. However, it appears that the movement of the decline of the trade-weighted dollar may reduce its salience in the Fed’s decision-making. The dollar’s appreciation was also an input into financial condition models that point to a tightening of conditions. The dollar’s contribution to this is less so now.”
(Market News Provided by FXstreet)