The US dollar’s rally reflects expectations of cyclical and structural US economic outperformance, driven by strong productivity growth that may be partly AI-led and supportive of higher earnings and dollar-positive capital inflows, analysts at Standard Chartered led by Steve Englander said.
Brent Donnelly of Spectra Markets added that short-term corporate demand for dollars alongside technical breakouts is creating a feedback loop that is keeping the greenback supported in the near term, though it may eventually lose momentum.
The dollar index, which tracks the currency against six major peers, climbed to a 13-month peak at 101.8 overnight and held firm around 101.6 during the Asia session on Thursday. It has also pushed through key levels against major currencies, including breaking past $1.14 against the euro this week and touching $1.1325, its strongest in more than a year.
Against the yen, the dollar traded at 161.73, hovering close to levels not seen in over four decades as Japan’s currency remains under pressure. Broader risk assets also felt the strain, with gold slipping below US$4,000 an ounce for the first time in more than seven months while bitcoin briefly dipped under US$60,000.
The move has been reinforced by widening rate differentials, with US two-year Treasury yields rising 27 basis points since early May to 4.15% while Germany’s equivalent has slipped to 2.56%. Traders have also reassessed the Federal Reserve’s policy path following geopolitical shocks and a more hawkish tone from new Fed chair Kevin Warsh, with markets now pricing the possibility of a rate hike as soon as October.
Focus now shifts to the US core personal consumption expenditures inflation reading due later on Thursday, a key test for whether the dollar’s momentum can extend further.
Reuters
