Tensions mount in foreign exchange markets as US dollar surges
The previously expected narrative for 2024 is crumbling
THE US dollar is moving sharply higher on foreign exchange markets. Changing monetary policy expectations and geopolitical tumult are ripping up expectations from earlier this year of the dollar easing amid a softening US economy and accommodation from the Federal Reserve.
The latest sticky US inflation data, coupled with continued robust activity and turmoil in the Middle East, has sparked surging dollar demand. The market has gone from pricing six Fed rate cuts this year to well under the three projected in the latest Fed dot plot.
If inflation is coming down in a bumpy manner and real activity is holding up, why should the Fed cut this summer? Using Stephen Jen’s dollar smile picture, in which the US dollar tends to be strong when it economy either lags or outperforms, it’s as if both sides of the smile – a risk-on economy and risk-off geopolitics – are underpinning the past week’s breakout.
KEYWORDS IN THIS ARTICLE
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Opinion & Features
S-chip IPOs may be coming again, but don’t count on investors getting too excited
London watchdog’s name-and-shame plan is mad, bad and dangerous to the City
Foxconn’s musical chairs sound like punk rock
Asset owners can’t afford to sidestep sustainability
Japan should leave the yen bazooka at home
UK and France forge new alliance over backing Ukraine – and aim to bring Nato with them