Dollar on A Highway to Heaven, how Long the Uptrend Lasts?

Dollar on A Highway to Heaven, how Long the Uptrend Lasts?

The U.S. dollar will remain strong for at least the next three months as it benefits from expectations for aggressive Federal Reserve interest rate increases and safe-haven appeal brought on by concerns about a global recession.

A widespread dollar rebound versus almost every other currency is getting aid from the current sell-off in risk assets and the bond markets, which has reached levels unseen in the past 20 years. Analysts claim that there is now no compelling reason to anticipate a standstill. The dollar was already up a sizable 7 percent last year. It has risen another 12 percent this year, routinely outpacing forecasts for how long its winning run would endure.

Will the Global Economic Crisis Continue?

According to Jane Foley, director of FX strategy at Rabobank those who think the dollar is going to fall because the market is not pricing in as many interest rate rises from the Fed as before are ultimately forgetting that the currency is also a safe haven. What are we going to purchase if we sell the dollar if we are, ironically, staring at a probable recession in the eurozone and the UK and if global growth is falling?

The absence of alternatives should maintain the dollar well-bid against almost all currencies. However, the strength of the dollar will most severely affect those with little to no interest rate support. This year has seen double-digit percentage losses for the euro, the Japanese yen, and the British pound because their central banks have either not raised rates or have not kept up with the Fed’s vigorous policy tightening.

The policy meeting’s minutes from June show worries that inflation may undermine confidence in the Fed’s capacity to manage it. This has forced the central bank to start the most severe tightening cycle in decades. It has caused the markets to crash due to worries of a recession. The euro is now down more than 10% for the year. It should rise by over 8.0 percent to about $1.10 by the middle of 2023. The consensus 12-month euro forecast was, however, the lowest in five years. Nine analysts anticipate parity to be reached or broken by mid-2023.