(Bloomberg) -- The dollar is rallying this week as traders start to question how aggressive the Federal Reserve’s interest-rate cutting path will be compared to its global peers.
The Bloomberg Dollar Spot Index is gaining for a fourth-straight session on Thursday, set for its longest winning streak in a month, after better-than-expected ISM data caused traders to further temper their bets on monetary easing. That helped the greenback extend the advance it started earlier in the week, when Chair Jerome Powell said the US economy was on solid footing.
“We have been pointing to how the US dollar was looking cheap and oversold and was bound for a bounce higher as market attention shifts outside the US to the rest of the world,” said Jayati Bharadwaj, a currency strategist at TD Securities. “That seems to have been playing out as US data has stabilized while rest of the world data is moderating or slowing causing us to re-evaluate the central bank trajectory in those economies.”
Traders have been wary of taking a stance on the dollar thanks to the uncertainty surrounding the Fed’s rate-cutting path and the US elections. That makes this latest comeback more about its peers.
A selloff in major peers the pound and yen bolstered the greenback’s strength on the session. Sterling fell more than 1% versus the dollar Thursday after Bank of England Governor Andrew Bailey signaled the prospect of more aggressive monetary easing should inflation stay subdued. The yen extended losses seen after new Japanese Prime Minister Shigeru Ishiba jolted markets by saying a day earlier that the economy isn’t ready for another rate hike.
Also supporting the dollar in recent sessions is a sharp escalation of the conflict in the Middle East after Iran fired roughly 200 ballistic missiles at Israel on Tuesday, following Israel’s own strikes in Lebanon. Israeli Prime Minister Benjamin Netanyahu has vowed to retaliate. The greenback typically gains during periods of geopolitical stress as investors seek safety in US assets.
“The haven bid, and simply the fact that the US economy is not in dire straights, are both boosting US dollar today,” said Helen Given, a foreign-exchange trader at Monex Inc.
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