higher than those in many developed countries. Meanwhile, the Fed has raised interest rates faster than expected in an effort to tame inflation, putting yields in the U.S.
They believe the euro could fall as low as $0.85, after breaching $1.00 this week for the first time in 20 years. "One cannot have a weak USD (dollar) without a strong EUR (euro), and right now, the latter is in the midst of a structural shift that will be incredibly painful," analysts at TD Securities wrote. A potential energy crunch in the euro zone, for example, has investors doubting the European Central Bank can raise rates far without hurting growth. as the Fed tightens monetary policy, the outlook for many other economies appears even gloomier, increasing the dollar’s allure. Though recession worries have flared in the U.S. what happens if you put on a position and the dollar keeps on strengthening?" said Brian Rose, senior economist at UBS Global Wealth Management. "Almost any currency looks attractive compared to the dollar on a longer-term basis, but investors have to ask themselves.
Still, the dollar’s momentum has made investors hesitant to stand in its way. Moreover, history shows that while the greenback tends to strengthen before a Fed hiking cycle, it begins to fall soon after, a pattern it has so far deviated from. The extent of the dollar's strength has taken markets by surprise.Ī model used by BoFA Global Research comparing macroeconomic fundamentals in different economies, for example, last month showed the dollar was overvalued against the currency of every G10 country.
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