The US dollar is experiencing a notable rally in the foreign exchange market, with the dollar index rising for three consecutive days. This streak is expected to be the longest in more than a decade. The strength of the US economy has fueled speculation that the policy interest rate will remain high, attracting money inflow into the United States. This influx of funds puts pressure on the dollar as investors seek higher interest rates compared to Europe and Asia.
If the current trend continues, the Bloomberg Dollar Spot Index, which heavily weighs the euro and the yen, is on track for its eighth consecutive week of highs. This would mark the longest increase since the index’s inception in January 2005. The Intercontinental Exchange (ICE) dollar index has also experienced a similar increase and is predicted to achieve its longest run in nine years.
The recent surge in the dollar reflects the vulnerabilities emerging in the global economy. Economic data indicates that the US economy is accelerating, while Europe and China are experiencing slowing growth. Furthermore, markets anticipate rate cuts in developing countries.
Kit Jacks, a strategist at Societe Generale, notes that the strength of the US economy and the weakness of European data have created favorable conditions for the dollar to outperform. Matthew Hornbach, head of global macro strategy at Morgan Stanley, adds that the positive interest rate spread story supports the dollar’s upward trajectory.
However, as the dollar continues to appreciate, Chinese and Japanese officials have intensified efforts to defend their respective currencies. Several members of the European Central Bank’s (ECB) policy committee have also expressed support for further rate hikes.
While attempts to strengthen their currencies through interventions have had little effect, some experts argue that decisive and meaningful action must be backed by compelling data and market conditions. Edward Moya, a senior market analyst at Oanda, believes that the ongoing property crisis is impacting China’s outlook, while German manufacturing orders data is concerning.
In summary, the US dollar is poised for its longest rally in years as it defies the gloomy global economic conditions. The strong US economy and contrasting weaknesses in Europe and China support the dollar’s upward momentum. Efforts by Japan, China, and the ECB to defend their currencies have had limited success.
The dollar index rose for a third straight day in the foreign exchange market on Thursday, which is likely to be the longest weekly streak in more than a decade. Against a backdrop of the strength of the US economy, there is growing speculation that the policy interest rate will be maintained at a high level.
This expectation of higher interest rates has led to an inflow of money into the United States. That puts increasing pressure on the dollar as investors seek higher interest rates than in Europe and Asia.
The Bloomberg Dollar Spot Index, which weighs heavily on the euro and the yen, is on track for eight straight weeks of highs if it continues at this rate. This will be the longest increase since the index began in January 2005. The Intercontinental Exchange (ICE) dollar index has similarly increased and is expected to post its longest run in nine years.
The recent strength of the dollar reflects the cracks that are forming in the global economy. Economic data suggests that the US economy is accelerating while growth in Europe and China is slowing, and markets expect rate cuts in developing countries.
“The US economy is so strong at the moment and European data is so weak that it is easy for the dollar to overshoot,” said Kit Jacks, strategist at Societe Generale.
“We’re seeing resilience in the US economy while global growth, particularly in Europe and then China, is weakening,” said Matthew Hornbach, head of global macro strategy at Morgan Stanley for sure,” he said. “The interest rate spread story is positive for the dollar,” he said.
That said, as the dollar resumes its appreciation, Chinese and Japanese officials have increased the defenses of their respective currencies, and several members of the European Central Bank’s (ECB) policy committee have expressed support for further rate hikes soon after. u express.
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“Metouric intervention in the currency becomes cheap if it is not accompanied by compelling data and market conditions that are the basis for decisive and meaningful action,” said Edward Moya, senior market analyst at Oanda.
But these efforts to boost the currency have had little effect, leaving Japanese officials “halfway through the best verbal interventions,” Moya said. He added that the property crisis was weighing on China’s outlook, while German manufacturing orders data was “depressing.”
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news-rsf-original-reference paywall">Original title: Dollar Set for Longest Rally in Years As US Defies Global Gloom (excerpt)
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