US Dollar ‘s Winning Streak

The US dollar is on its longest winning streak in nearly nine years, with eight consecutive weeks of gains against major currencies, marking its best performance since 2014-2015. It has surged by 5% since mid-July.

This rally follows months of uncertainty over the dollar’s status as the world’s reserve currency, as concerns about de-dollarization rose when major oil producers like Saudi Arabia joined the BRICS group led by China.

James Athey, investment director at Abrdn, emphasized that reports of the dollar’s decline have been greatly exaggerated, pointing to the US Dollar Index reaching a six-month high. This strength is attributed to positive economic data from the US, increasing expectations of the Federal Reserve maintaining higher interest rates, which typically attract foreign capital.

US dollar
The US economy continues to demonstrate remarkable strength, while matters in China and Europe, in particular, seem to be descending into a much more recessionary place. Source/ Internet.

Simultaneously, economic troubles have unfolded in China and Europe, enhancing the dollar’s appeal. The US economy remains resilient, with near-record-low unemployment, continuous job growth, and rising inflation-adjusted wages. Economists have raised growth forecasts, and a “soft landing” appears increasingly likely, where inflation is controlled without causing a recession.

Carsten Brzeski, global head of macroeconomic research at ING, noted that the US economy continues to surpass expectations and is more resilient than feared, boosting consumer confidence and giving the Federal Reserve a reason to keep rates high to combat inflation.

Meanwhile, Europe and China face economic challenges. The euro has declined by 4.4% since mid-July, while the Chinese yuan reached its lowest level against the dollar in 16 years, down by 2.6%. Europe’s economic growth was revised down to 0.1% for the second quarter, indicating a potential stagflation scenario—high inflation with little growth. Germany’s industrial production also fell for the third consecutive month.

The combination of a stronger US economy and weaker performance in Europe and China has contributed to the dollar’s resurgence, maintaining a favorable interest rate differential. China’s economic troubles have not only impacted the yuan but also other regional currencies and major trading partners like the euro.

These factors have made the US dollar a safe haven amid global economic uncertainties, leading to its impressive winning streak.

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