USA Dollar

Dollar Eyes Best Run in 18 Months on Fed Rethink, Haven Demand

(Bloomberg) — The strength of the US economy and the relative safety of the world’s most traded currency stoked the dollar toward its biggest weekly gain in more than a year and a half.

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The greenback sharply gained alongside Treasuries Friday after a report that Israel was preparing for an imminent Iranian attack. The currency’s safe-haven status and hotter-than-expected inflation data have sent a Bloomberg gauge of the dollar up roughly 1.3% since Monday’s open — on track for the largest weekly advance since September 2022.

Underpinning the latest bout of dollar strength was a key reading of US consumer price growth that topped estimates Wednesday, leading swaps traders to rein in expectations for a near-term policy shift and price around two rate cuts this year from the Federal Reserve beginning around September. Prospects for US policy are increasingly diverging from other, global monetary authorities like the European Central Bank, which signaled this week a rate cut could come as soon as June amid softening inflation reports.

“Looking at the indicators — at least for the time being — there could be some argument for continued dollar strength,” said Alejandra Grindal, Ned Davis Research’s chief economist. “Based on what we know now, there seems to be an increasing possibility that the Fed won’t go first.”

The dollar, historically, has strengthened when other major central banks have moved first, she noted.

Read more: Traders See Fed Waiting Until After Summer to Cut as Yields Soar

The euro, meanwhile, fell to its lowest mark against the dollar since last November, reigniting discussions of whether the common currency might reach parity versus the greenback.

Read more: ECB-Fed Split Sends Euro to Five-Month Low as Parity Talk Grows

Risk-sensitive currencies like the Swedish krona and Australian dollar each fell more than 1%. The Japanese currency — also a safety play — was the only Group-of-10 or emerging market currency to post a meaningful gain against the greenback Friday.

“With the Fed in a comfortable position to stay on hold, compared to other economies where growth is poorer, we could see more bouts of US dollar strength, especially vs European currencies,” said Dominic Schnider, head of global foreign-exchange and commodities at UBS Global Wealth Management.

–With assistance from Nazmul Ahasan.

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