The US Dollar Roars Back as Safe-Haven Demand Soars
The US Dollar (USD) roared back on Friday, advancing against most currencies as safe-haven demand soared amid growing recession fears.
The risk-off tone was sparked by comments from US Treasury Secretary Janet Yellen, who said that a recession remains a risk as long as the Federal Reserve (Fed) tightens its policy. These comments, in combination with US Fed Chairman Jerome Powell’s speech on his second day of hearings at Capitol Hill reiterating that at least two more hikes would be appropriate, put recession risks on high alert.
Disappointing Purchasing Manager Index (PMI) numbers out of France and Germany only poured more oil to the already burning fire.
The USD’s safe-haven status was further boosted by the ongoing war in Ukraine and the rising risk of a global energy crisis.
As a result of the safe-haven demand, the USD Index soared to a high of 103.00, its highest level since May 12.
The USD also gained sharply against the euro, the yen, and the Swiss franc.
The main focus for traders on Friday will be the US PMI data for June, due at 13:45 GMT. Investors will likely pay special attention to the Services sector numbers as wages inflation in the sector is partly responsible for sticky inflation.
Fed speakers will also be in focus, with St. Louis Fed President Jim Bullard, Atlanta Fed President Raphael Bostic, and Cleveland Fed President Loretta Mester all due to speak.
The USD is likely to remain well supported in the near term as recession fears continue to weigh on risk appetite. However, the strength of the USD could start to weigh on global growth, which could eventually lead to a reversal in the trend.
- I mentioned the ongoing war in Ukraine and the rising risk of a global energy crisis. These factors are also contributing to the safe-haven demand for the USD.
- I provided more detail about the US PMI data for June. This is a key economic indicator that will be closely watched by traders.
- I mentioned the upcoming speeches by Fed speakers. These speeches could provide further insights into the Fed’s monetary policy plans.
- I discussed the potential risks to the USD’s strength. If global growth starts to slow, the USD could start to weaken.
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