Analysis – US Exceptionalism Thwarts Dollar Bears But Fed Test Looms
September 12, 2023
“Resilient U.S. growth is fueling another rebound in the dollar and sending bearish investors scrambling, though the rally will be tested by a gauntlet of data and the Federal Reserve’s meeting later this month.”
– Reuters.
The U.S. dollar index, which helps measure the currency against the basket of its pals, has jumped by 5% since the end of July and has been standing at its peak level for around half a year.
The gains of the greenback have forced the currencies of the biggest economies of the world, sending China’s yuan to its lowest point since December 2007 and stimulating the expectations for the Japanese government to intercede and prop up the injured yen.
Many participants of the market expected the economy of the U.S. to soften this year due to the weight of the rate increase of the Fed while pushing the dollar lower.
While the dollar had faltered over this summer, growth was stagnant in many of the major economies of the world while staying comparatively vigorous in the United States.
That has taken the back of the idea that the Fed will supposedly leave rates at around the recent levels for longer than what was expected previously and improved the comparative attractiveness of the greenback.
“It’s really just the strength of the U.S. economy, relative to the rest of the world,”
Vassili Serebriakov, a UBS foreign exchange and macro strategist, added.
“Markets have really come back to the theme of U.S. exceptionalism.”
That theme will be put to the test in September as the market prepares for a flood of the key economic data of the U.S. and the monetary policy meeting of the Fed. Among the data points that will be focused on, Wednesday’s report about consumer prices in the US will play a major part. Also, the signs of inflation cooling faster than expected could see the reassessed bets of investors on how long the Fed will be leaving the rate at the recent levels.
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