The US dollar is currently in the midst of its most extended winning streak since the winter of 2014-2015, with the greenback set to achieve its eighth consecutive week of gains against a basket of major currencies. This remarkable run, during which the dollar has appreciated by 5% since mid-July. It follows a period of volatility and concerns about the currency’s status as the world’s reserve currency.
Speculation regarding the potential de-dollarization of global trade resurfaced recently when the BRICS group, led by China, expanded to include major oil producers like Saudi Arabia.
However, analysts have emphasized that reports of the US dollar’s decline are greatly exaggerated for the winning streak.
The US Dollar Index, now at a six-month high, has been bolstered by a series of positive economic indicators from the United States. These data points have fueled expectations that the Federal Reserve will maintain higher interest rates for an extended period. Higher interest rates typically attract foreign capital, as investors seek larger returns.
In contrast, concerns have emerged over the economic outlooks of China and Europe. The US economy has displayed remarkable strength, with unemployment near a 50-year low, consistent job growth, and rising wages when adjusted for inflation. This positive performance has prompted economists to revise their growth forecasts upward and has increased the likelihood of a “soft landing,” where inflation is reduced without triggering a recession.
Carsten Brzeski, global head of macroeconomic research at ING, highlighted the resilience of the US economy, noting that it continues to exceed expectations. This robust performance is expected to boost consumer confidence and provide the US Federal Reserve with greater incentive to maintain interest rates at a 22-year high to combat inflation.
The contrast between the US and Europe in terms of economic performance and interest rates has played a significant role in the dollar’s recent resurgence, according to Russ Mould, investment director at AJ Bell. The difference in interest rates and the prospect of it persisting have contributed to the dollar’s strong performance.