(Bloomberg) -- The dollar is on track for its longest run in more than two years as US economic resilience forces traders to rethink their bets for Federal Reserve interest-rate cuts.
The Bloomberg Dollar Spot Index advanced for an eighth straight day on Wednesday, set for its most protracted winning streak since April 2022. It’s up almost 2% in that period.
The dollar has surged as traders erased bets on another half-point cut from the Fed in the wake of last week’s surprisingly strong US jobs report. Traders have been repeatedly forced to reconsider the outlook for US monetary policy this year, as data points to a robust economy even as inflation slows.
“‘Resilient’ is a word that we use a lot to describe the health of the US economy. It’s difficult to argue against,” said Erik Wytenus, head of investment strategy at JPMorgan Private Bank EMEA, in an interview with Bloomberg TV. This is driving a preference for US assets, he added.
The dollar advanced against most G-10 currencies on Wednesday, with the New Zealand dollar tumbling as the nation’s central bank cut interest rates by half a percentage point, stepping up the pace of easing.
In the US, money markets implied about 48 basis points of Fed rate cuts by the end of the year, down from nearly 70 basis points at the start of the month. A quarter-point cut in November that until recently was seen as certain is now given a chance of about 80%.
Traders are now looking ahead to the minutes of the last Fed meeting, due later on the day, and an inflation report on Thursday. US consumer prices are forecast to have risen 2.3% in September from a year earlier, from 2.5% the month prior.
Buying Dollars
Corporate names have been buying the dollar versus the pound in recent days, while hedge funds continue to add to long positions versus the yen, according to two Europe-based traders, asking not to be identified because they’re not authorized to speak publicly.
Bearish euro options structures have also been in demand since last week’s US jobs report, while market sentiment into next month’s US election is the most bullish on the greenback in more than three months. The premium to own long-dollar options versus its major peers has risen in 10 out the last 11 days.
“It’s an ongoing, piecemeal reduction of short dollar positions,” said Neil Jones, a managing director at TJM Europe. Long-term investors in Asia and the Middle East are selling the euro and the pound as they shift away from their long-held bullish views those currencies, he added.
(Updates with Fed pricing in paragraph six.)
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