We’ve seen a bad few months for the dollar, but it seems like it has been coming back slowly and as of right now it looks very likely that we might start seeing a lot of strength coming back for the US Dollar.
It seems like the federal reserve might be staying hawkish on interest rates by potentially keeping the rates higher for longer while other central banks are pivoting to rate cuts, this differential will favour the dollar massively. The higher yields will bring more foreign investors, which the dollar has been missing because of investors moving towards the Chinese Yuan, but if interest rates stay higher for longer, things might look really good very soon for USD.
Something that is very common with USD is that it tends to strengthen not when its competitors are strengthening, but when they are weakened. This is due to people still seeing it as a safe haven. Many strong currencies in Europe have been falling back a little because of politics which are making some countries unstable, whereas the US manages to keep the dollar stable even when politics are not favourable.
We also just had CPI release which did help USD even more, and other important factors like GDP growth staying strong, Unemployment staying relatively low enough and consumer spending is still staying strong, this proves that the dollar is not just stable, but willing to grow more.
On the technical side, we can clearly see that some changes have occurred recently and that the dollar is indeed strengthening. After seeing the US Dollar Index (or DXY) crashing for months on end, we finally started seeing some accumulation, which hints at a slow in the rate that it’s weakening. Today we are finally seeing actual growth with the DXY steadily making higher highs.
But, with anything this can just be temporary, and we will have to wait and see what happens in the long run. At the moment this sudden gain in momentum has nothing to do with improvement, but rather just because of a slow in weakening which attracts investors. But all of that could come crashing down if the interest rates do not remain favourable, and it could start something that could very potentially completely harm the US dollar’s long-term integrity. The levels we are seeing hasn’t been seen for a long time, and it would signal for something really bad if the levels of the dollar keep dropping from here.
(Just my opinion, not financial advice)