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Analysis – Hawkish Fed, strong U.S. economy will keep dollar king of currencies

by Saqib Iqbal Ahmed

NEW YORK (Reuters) – The U.S. dollar has surged to its highest level in 20 years this year, and there are still plenty of bulls betting that the greenback will continue to climb thanks to a hawkish Federal Reserve and should Economic news that puts the U.S. ahead of other major economies.

The U.S. dollar has risen about 13.5% against a basket of currencies this year, hitting a record close to 13 the strongest year since. year, and the euro has been pushed down by about 12% below parity, a level not touched in two decades.

The U.S. dollar has been the go-to for investors, driven by sharp interest rate hikes by the U.S. Federal Reserve and buyers seeking safe-haven assets from the Russia-Ukraine war and other areas of global uncertainty.

USD per G 10 currency rises 19 )% against JPY and 15% against GBP.

“We’ve been structurally bullish on the dollar, like last time 15 months…it feels a bit long, but we’re starting from No reason to change was found,” said Shahab Jalinoos, global head of FX strategy at Credit Suisse Group AG.

Chart: King Dollar https://inew.news/wp-content/uploads/2022/08/localimages/chart.png6307c0c512ffc.png

JPMorgan (NYSE: JPM ) analysts pointed to recent U.S. inflation and employment economic data as “encouraging,” while European and China’s “vulnerability” is increasing as a key reason for the dollar’s continued rise.

U.S. consumer prices rose at an annual rate of 8.5% in July, down from the 9.1% reported in June, while an unexpected acceleration in job growth in July eased fears of a struggling economy.

The same cannot be said for other major economies.

The Bank of England predicts the UK will enter a recession later this year as soaring energy bills help push inflation into double digits.

Europe is also now near double-digit inflation, driven in large part by the ongoing Russia-Ukraine conflict and the resulting energy crisis. Economists believe the continent could be caught in an unbreakable wage price spiral, with investors reluctant to buy the euro even after its sharp fall.

“The biggest concern in Europe is Ugo Lancioni, head of currency management at Neuberger Berman.

Meanwhile, the People’s Bank of China slashed its key lending rate this month due to economic concerns in July. An unexpected slowdown, with factory and retail activity squeezed by Beijing’s zero Covid-19 policy and the housing crisis, has unexpectedly revived demand.

Elsewhere in the world, a strong dollar could help Exports and trade balance in some other countries, but it exacerbates other problems: Oil and other dollar-denominated goods are more expensive for buyers in other currencies, and it becomes more difficult for companies and governments to repay dollar debt.

“Much of the dollar’s ​​dominance is due to simply seeing how the U.S. can get a buffer from all the negative sentiment that has developed,” said Juan Perez, head of trading at Monex USA in Washington. .

Rising rates

Aggressive Fed rate hikes aimed at curbing inflation have made the dollar stronger, according to Rob Haworth, senior director of investment strategy at US Bank Wealth Attractive, pushing U.S. Treasury yields above those in many developed countries – a trend that is likely to continue to be managed.

“We just don’t see a change in the fundamental paradigm that the Fed is probably still the most aggressive of the major central banks,” he added.

Federal Reserve officials reiterated Thursday at the central bank’s annual meeting in Jackson Hole, Wyoming, that they will push interest rates higher and hold them steady until inflation is squeezed out of the economy.

Investors remain bullish on the greenback even though it is at a high.

Speculators’ net long position on the currency rose to $13 in the last week. 37 billion, according to Reuters calculations based on data released by the U.S. Commodity Futures Trading Commission on Friday, compared with the amount since July 2021. The size of the position is roughly the same.

While Lancioni believes the dollar is chronically overvalued, he is hesitant to short the dollar. “It’s hard to go against the dollar right now,” he said.

Investors will listen carefully to Fed Chairman Jerome Powell at Jackson Hole on Friday to get a clearer picture of his outlook for the economy view. The ECB could weigh on the dollar,” said Quincy Krosby, chief global strategist at LPL Financial (NASDAQ: LPLA ).



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