How Long Will The US Dollar Sustain Its Strength?

The USD has encountered marginal progress since the recent robust report on US employment figures.

However, its upward momentum has plateaued compared to earlier in the week. Two primary impediments hinder the dollar’s ascent. Firstly, the buoyant growth updates have propelled more cyclically inclined currencies, easing concerns of a looming recession.

This pivotal aspect aligns with Goldman Sachs 2024 currency forecasts: Anticipating robust economic growth, currencies on the cyclical periphery.

In contrast, the Euro area tracking has receded by two tenths. Surprisingly, this has not translated into substantial differentials in interest rates.

Until the cyclical disparities manifest as policy discrepancies, the FX market is likely to grapple with a lack of breakout momentum.

Notably, the Japanese Yen remains an exception due to its responsiveness to duration, prompting market attention towards relative value trade expressions for the time being.

Secondly, despite a modest recalibration in Fed expectations, parallel adjustments in other markets, such as ECB forecasts, have occurred almost synchronously. This synchronized movement persists, despite additional setbacks in economic data.

In alignment with the risks highlighted in earlier outlook, I maintain the perspective that the risks lean towards a Dollar exhibiting resilience.

As long as inflation remains cooperative, and other policymakers exhibit hesitancy in outpacing the Federal Open Market Committee (FOMC), the broad Dollar appears destined to remain in a sluggish trajectory.

Market commentary and analysis from Luca Santos, currency analyst at ACY Securities

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