If investors agree on one thing this year, it’s that the dollar is going to fall. That’s made the greenback’s 2% bounce over the last month particularly confusing.
U.S. inflation is cooling and the Federal Reserve may pause its interest rate hikes next month. So the dollar should be on the way down, right?
Analysts say a number of factors are probably at play. One is that a range of worries – about the U.S. debt ceiling negotiations, the health of banks, and the global economy’s outlook – are burnishing the dollar’s safe-haven credentials.
Meanwhile, there are some signs that the Fed may have to raise rates again, and that more technical factors to do with investor positioning are involved.
DEBT CEILING FEARS
The dollar index – which measures the U.S. currency against six others – has risen roughly 2% since the middle of April to around 103, although it’s still down around 10% from last September’s 20-year high of 114.78.
The go-to explanation of currency strategists right now is the debt-ceiling debacle is boosting the dollar.