Settling-in phase for dollar American in recent sessions, but in mid-April the Dollar Index had its best week since September 022. What pushed operators’ purchases 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 to 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 comments “dovesh” by the Governor of the ECB, Christine Lagarde. The single currency hit its lowest since last November at 1.0602, followed by bottom of GBP 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 encounter some difficulties to sell their products abroad, because these are more expensive on international markets. While many lose, others gain, such as mining companies listed on the FTSE 100 of London, which receive most of their revenues in dollars, 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 one sentiment market 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, from a minimum of one cut up to two.
All this therefore leaves an unknown as to the central banks’ next moveswith the ECB which at this point could get ahead of the Fed in the long-awaited pivot monetary.
By Giacomo Calefcountry head Italy of NS Partners
