Last week was an adjustment for the US dollar, but the previous one had been archived with a +1.7% against a basket of six other currencies, the Dollar Index, marking the best seven days since September 2022. What pushed the purchases by operators was above all the change in outlook relating to the speed of the Federal Reserve’s monetary easing, also based on the report on inflation in the United States, which indicated an acceleration in prices above expectations at 3.5%.
Specifically, the currencies that suffered the most in the exchange rate against the greenback were the British pound and the euro, the latter also sunk by the “dovish” comments of the Governor of the ECB, Christine Lagarde. The single currency hit its lowest since last November at 1.0602, followed by the GBP’s bottom of 1.240. However, the dollar’s strength also reverberated in Asia, where the yen continued to depreciate, reaching a 34-year low, at 154.73 per dollar. Last but not least, the recent tensions in the Middle East push the most cautious to flock to the greenback, considered a safe haven currency during periods of uncertainty.
The impact of a strong dollar is positive on investors exposed to the US market, even if the purchase of financial instruments is more expensive. However, under these circumstances, American companies experience some difficulties in selling their products abroad, because these are more expensive on international markets. If many lose, others gain, such as the mining companies listed on London’s FTSE 100, which receive most of their revenues in USD, and which have pushed the index close to historic highs, just above 8,000 points.
The recent strength of the US dollar therefore reflects the current market sentiment towards the Fed: the expectations of operators, who were discounting 6/7 rate cuts at the end of 2023, have been significantly reduced and are now discounting, for 2024, by a minimum of one cut up to two. All this therefore leaves an unknown on the next moves of the central banks, with the ECB which at this point could anticipate the Fed in the long-awaited monetary pivot.
