Goldman Sachs notes another sign that the US dollar remains strong against its rivals. The broad dollar index has surpassed its October 2023 high, with recent strength attributed to the lack of rate cuts by the Federal Reserve and strong real interest rate benefits, making the dollar a formidable currency.
the main points:
Broad base power: The broad dollar index has risen above its October 2023 highs. This recent strength is broader and driven by emerging markets, especially the Mexican peso (MXN).
Individual influences: Specific factors, such as the performance of the Mexican peso, played a large role. Goldman Sachs expects the impact of these factors to gradually diminish.
Impact of Fed policy: Unlike last year, when the dollar’s strength was due in part to the prospect of interest rate hikes by the Fed, current strength is increasingly due to the absence of interest rate cuts by the Fed. This political stance helped maintain the dollar’s advantage.
Real interest rate advantage in the United States: The US real interest rate advantage and strong asset yields continue to support the dollar, making it difficult for other currencies to compete. This dynamic also affects major currencies in Asia, such as the Japanese yen and the Chinese yuan.
Supporting election risks: The upcoming US elections have added an additional layer of support to the dollar, as election-related uncertainty contributes to its strength.
Conclusion:
Goldman Sachs analysis highlights the enduring strength of the US dollar, driven by broad support from emerging markets and a strong US real interest rate advantage. The failure to cut interest rates by the Federal Reserve and the risks of the upcoming elections also contribute to the strength of the dollar. As these factors continue to influence, the dollar is expected to maintain its advantage over global competitors, impacting market dynamics and investment strategies.
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