The US Dollar Index is trading near its highest level since April, still supported by the Fed's hawkish stance in contrast to other developed country central banks.
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| US Dollar Supported by Central Bank Policy Divergence |
SakurajimaForex - In early trading week (21/June), the US Dollar held near a 2-month high as supported by the Fed's hawkish stance on interest rate policy. At the time of this news release, the Dollar Index (DXY) which measures the strength of the USD against six other major currencies was around 92.25, not far from the peak reached at 92.40.
Market sentiment towards the US Dollar became very bullish after the Fed signaled a faster rate hike than previously expected. This was further emphasized by the President of the Fed St. Louis, James Bullard, who said that the central bank's policy shift towards monetary tightening could happen more quickly. He reasoned that monetary tightening is a natural response to be taken by the Fed in responding to the surge in inflation in recent months.
Strength stalled, analyst: US dollar could still rise again
In the midst of a fairly impressive rally in the last few days, analysts expect that the Dollar Index may move flat (consolidation) first before strengthening further. On the other hand, the movement of the Euro, Sterling, to the trio of commodity currencies (AUD, CAD and NZD) this morning seems to be recovering slightly. This condition was triggered by the profit-taking action of investors on long dollar positions.
In the end, the striking difference in monetary policy between the Fed and other developed country central banks such as the ECB, the SNB, and the RBA has the potential to encourage further strengthening of the dollar.
"The Fed's latest dot plot is a significant surprise… In the scenario that will occur in the markets, we will see the potential for the euro to weaken further against the US dollar if the ECB maintains its current policy rate," Goldman Sachs analysts said in a statement. note.
In line with Goldman Sachs expert, Chris Weston, who analyzes from a technical perspective, is also bullish on the US Dollar. "Technically, I expect the Fibonacci 61.8 retracement of the Dollar Index to hold for a while or at least we'll see some consolidation. It seems that the technical resistance on DXY is very small which means the process of repositioning the Dollar Index to bullish is underway," said Chris Weston, chief foreign exchange analyst. Melbourne-based Pepperstone.
