The greenback is surging toward a three-month high, leaving traders contemplating the possibility of enduring high-interest rates.
This surge comes just ahead of Federal Reserve Chair Jerome Powell’s much-anticipated speech at the Jackson Hole symposium this Friday.
The Bloomberg Dollar Spot Index made an impressive climb, reaching a 0.2% increase to levels not seen since early June.
Investors are on the edge of their seats, eagerly awaiting Powell’s remarks, which are expected to provide crucial insights into the Fed’s strategy for combating inflation. Many anticipate these insights to be more hawkish than what other central banks are suggesting.
This sentiment has propelled the dollar higher against all major currencies, with the South Korean won and the Swedish krona being hit the hardest.
Win Thin, the global head of currency strategy at Brown Brothers Harriman & Co. in New York, concurred, stating, “The fundamental landscape continues to favor the greenback. Recent decisions by the FOMC, European Central Bank, and Bank of Japan, coupled with ongoing economic data, underscore the growing divergence among central banks. As a result, we can expect further gains for the dollar.”
Just a few months ago, the greenback appeared to be losing its momentum before rebounding in recent weeks, suggesting that investors are reevaluating their bets on US interest rates.
This renewed strength of the world’s largest economy defies expectations of a slowdown.
On Thursday, two Fed officials indicated that the central bank may be nearing the end of its rate hikes, though one of them did not rule out the possibility of further increases until inflation shows a clearer downward trend.
“Powell is likely to emphasize that the job is not yet complete, maintaining a hawkish stance,” noted Rodrigo Catril, a currency strategist at National Australia Bank. “As a result, we can anticipate the dollar to continue its upward trajectory in the short term.”