The Impressive Rise of the U.S. Dollar Continues
The U.S. dollar is currently experiencing a remarkable bull run that has taken many traders by surprise. What was once an unexpected trend just a few months ago has now become a historic milestone in the world of currency trading.
According to FactSet data, the ICE U.S. Dollar Index DXY has risen by 0.8% this week alone, indicating that it is well on its way to achieving a 12th consecutive week of gains. If this momentum continues, it will surpass the previous record set in October 2014 when the index experienced a 12-week winning streak.
However, traders and currency analysts are already looking ahead to the potential for the U.S. dollar to extend its winning streak for a remarkable 13th week. This achievement would be unprecedented since the earliest available data from 1985, according to Dow Jones Market Data.
Jim Bianco, founder of Bianco Research, recently shared his insights on the dollar's prospects through posts on the social media platform X (formerly known as Twitter).
The rise in Treasury yields is contributing significantly to the strengthening of the dollar against other currencies. As these yields continue to climb, it becomes increasingly likely that the dollar will maintain its upward trajectory.
Furthermore, traders are capitalizing on this trend by increasing their bullish bets on the dollar in futures markets. Recent analysis of CFTC data reveals that the gross dollar long-position for non-commercial traders has reached its highest level in 11 months, extending their positive sentiment for nine consecutive weeks.
To provide some context, the last time traders were this optimistic about the currency was when the dollar index was on the verge of reaching a two-decade high. On September 28, 2022, the index soared to its highest level since May 2002 at 114.78, according to FactSet data.
The impressive rise of the U.S. dollar continues to captivate traders and analysts alike, as it demonstrates unprecedented strength and potential for further gains in the near future.
The Future of the Dollar: Strong but Uncertain
Currency analysts in the U.S. and Europe are optimistic about the future of the dollar, thanks to expectations that the Federal Reserve will maintain higher interest rates for an extended period. This confidence is expected to support the dollar for at least the next few months.
However, starting in 2024, the outlook becomes more uncertain.
In a recent analysis, led by Valentin Marinov, head of G-10 currency research and strategy at French bank Credit Agricole, a team of analysts examined the performance of the dollar over the past 50 years. Their findings suggest that the dollar will continue to rise until the Federal Reserve begins cutting interest rates and a U.S. recession sets in, which they predict will happen in the second quarter of 2024. This projection allows for another three to six months of potential growth.
Nevertheless, beyond that point, the risks of a dollar retreat increase as the U.S. economy could start to slow under the weight of the Fed's interest rate hikes. Despite this, the current forecasts from the team indicate that the dollar will continue to gain ground against its main rival, the euro (EURUSD, +0.36%), which serves as a major central bank reserve and global payment currency, until December 2024.
Year-to-date, the dollar index has already risen by 3.2% after a 7.9% increase in 2022. Notably, the long-dollar trade was one of the few havens for traders seeking cover during a period of stock and bond sell-offs last year.
