The USD continued to rise sharply in the trading session on June 25, surpassing many important resistance levels and is heading towards the strongest month of increase in nearly a year, as investors increasingly believe that the US Federal Reserve (Fed) will continue to raise interest rates to curb inflation.
The USD Index - measuring the strength of the greenback against a basket of six major currencies - at one point touched 101.8 points, the highest level in 13 months, before fluctuating around 101.5 points.
This week, the USD also surpassed the 1.14 USD per 1 euro mark and at one point increased to the strongest level in 13 months against the common European currency. Compared to the Japanese Yen, the USD traded around 161.73 yen/USD, only slightly lower than the highest level in more than four decades.
The rise of the greenback took place when the market continuously adjusted expectations about US monetary policy.
Mr. Moh Siong Sim - Strategy at OCBC - said that the Fed is sending tougher signals, thereby boosting expectations that the central bank will continue to raise interest rates before the end of the year.
Before the war between the US and Iran broke out, the market still expected the Fed to cut interest rates. However, traders have now switched to betting that the Fed may start raising interest rates from October.
Since the beginning of May, the yield of two-year US government bonds - a measure reflecting short-term interest rate expectations - has increased by 27 basis points to 4.15%. Meanwhile, the yield of German government bonds for the same term decreased by 7 basis points to 2.56%.
In the 10-year term, the yield difference between US and German bonds also widened by about 20 basis points, exceeding the 150 basis points mark.
According to Mr. Steve Englander - Head of Global G10 Currency Research at Standard Chartered, the diễn biến of the USD and bond yields reflect the belief that the US economy will continue to outperform many other major economies.
We believe that the developments of yields and the USD reflect expectations that the US economy will outperform both in terms of cycle and structure. Strong productivity growth, partly thanks to artificial intelligence (AI), will support corporate profits and attract more capital inflows to the US," he said.
The strengthening USD also put pressure on a series of assets. This week, gold prices at one point fell below $4,000/ounce for the first time in more than seven months, while bitcoin prices also fell below the $60,000 mark for the first time since 2024.
In the currency market, the USD has risen to its highest level in seven months against the British pound and the highest level in 11 months against the Swiss franc.
Risk-sensitive currencies are also under pressure. The Australian dollar has fallen about 1.8% from the beginning of the week to below the 0.69 USD mark, while the New Zealand dollar has fallen about 1.7%, to near its seven-month low.
Investors are currently focusing on monitoring the US core consumer spending index (Core PCE) in May - an inflation measure prioritized by the Fed. This data is expected to provide more clues about the monetary policy roadmap of the US central bank in the coming months.
According to Mr. Brent Donnelly - Chairman of Spectra Markets analysis company, for the USD to continue to rise stronger, the interest rate difference between the US and major economies will need to continue to widen.
However, in the short term, businesses' demand to hold the USD is still very large and that will continue to support the greenback in the next few days," he said.
