A turbocharged US dollar is likely to be “stronger for longer” after reaching long-term highs against a host of major currencies, including the euro, Swiss franc and Swedish krona.
The US dollar is soaring.
The US Dollar Index, a trade-weighted measure of the dollar’s performance relative to six major currencies, has exploded in recent days, breaking easily through the 97.7 resistance level that had kept it contained since November. At 98.26, the index was last seen on Thursday trading at its highest level in nearly 2 years, 11 percent higher than its 88.25 low struck last February.
2019’s dollar gains have come chiefly at the expense of the euro, now quoted at a 22-month low of $1.113; the Swiss franc, now at a 27-month low of $0.979; and the Australian dollar, which traded briefly on Thursday below $0.70 for only the third time in the past 3 years. Spare a thought, too, for the Swedish krona, which traded at kr9.565 to the dollar—its weakest level since 2002!
The dollar has been carried higher over the past week by improved US data, but also by disappointing developments in other parts of the world.
Among upbeat US figures have been those showing big increases in durable goods orders and retail sales. Also helping is higher energy prices, which could stoke inflation and have investors second-guessing recent speculation about an extended period of interest-rate inaction at the Federal Reserve.
In Europe, Wednesday’s surprise drop in Germany’s Ifo Business Climate Index — a leading indicator of German business activity — meant less demand for euros, which many investors consider an alternative to dollars, thereby facilitating further demand for the greenback.
The Bank of Canada, too, has helped make buying dollars an easy choice. Like the RBA and RBNZ before it, the BoC seems to have abandoned all ideas of interest rate hikes, for now at least. Though it left interest rates unchanged at its meeting on Wednesday, the BoC also removed from its statement an explicit reference to a need for future hikes. The Canadian dollar has slipped as a result to $0.74 — the weakest it’s been since January 3rd.
Admitting defeat in the dollar forecasting game are analysts at Scotiabank. The bank’s chief FX strategist, Shaun Osborne, wrote on Thursday: “We have maintained a generally negative view on the USD’s longer-run outlook in recent months … but the USD’s gains to new cycle highs this week suggest a stronger-for-longer profile … is more likely.”