The dollar rose globally to its highest level since November due to the expectation that the United States Federal Reserve (Fed) will go against the policy of other central banks and keep interest rates in the current “high” range.
The difference was particularly important in Japan, since the yen reached the weakest area since 1986which generated the risk that the country’s monetary body would intervene again.
“The US economy remains resilient and the case for an imminent rate cut is unclear unless data softens; meanwhile, central banks elsewhere are cutting”commented Kit Juckeschief currency strategist at Societe Generale.
“With political uncertainty threatening to weigh on the market between now and the end of the year, it’s hard to see why the dollar is down this year.”added the specialist.
Although the European Central Bank and the Bank of Canada began their monetary easing earlier this month, the Fed held firm and left rates in the 5.25%-5.50% range, the highest in more than Two decades.
“We don’t see the dollar strengthening significantly from now on, but it’s hard to argue that it will reverse significantly in the near term”he pointed Nathan Thooftportfolio manager at Manulife Investment Management. “It is harming global economic growth at these levels”he clarified.
A high dollar has a full impact on various global markets: it undermines the price of raw materials, reduces the value of safe-haven assets, increases borrowing costs and affects the price of many small-cap stocks.
Nevertheless, The market continues to believe that the US currency could maintain its strength. In the past two weeks through June 18, traders traded more than $12 billion in bets that would emerge victorious if the dollar continues to gain against other currencies.
