The US Dollar outperforms other assets. The DXY remains strong against other major currencies, especially against the Yen, the British Pound, and the Euro.
US Dollar Index Below 112 Levels
The US Dollar Index closed at 111.98 on October 21, 2022. The DXY closed below the 15 DMA at 112.265. The greenback has to stay above 110.00 levels to remain strong.
The Fed’s rapid rate is the reason for the Dollar to appreciate. As inflation remains high in the country, the Federal Reserve has raised the interest rate.
The US recession looks absolutely certain in the next 12 months, making the Dollar outperform other currencies. The US Dollar index has climbed 16.5% in the current year. The US Dollar Index closed in the red after two weeks of upmove.
High Inflation in the US
September Consumer Price Index rose 8.2%, higher than predictions. Food prices and household expenses are climbing higher. The Fed increased interest rates to control inflation and bring down food and energy prices. The Fed has hiked rates to 3.25%, a rapid increase in a short period. Inflation shot to 9.1% in June 2022. The Fed has set a target of 2% for inflation which remains elusive despite the hawkish stance of the Fed.
Food prices surged, and the cost of dining out has shot up. The overall food index has gone up by 11.1%. Food and energy prices remain volatile as the Fed tames inflation with rate hikes. Used cars, gas, and apparel prices are declining.
Consumers are finding it tough to combat high prices. But, inflation is here to stay, say experts.
The stock market is struggling as the Dollar Index rises higher. Though the stock indexes rose higher, traders are worried if the indexes are at market bottoms or if it is a correction.
High inflation in the US strengthens the US Dollar, which makes it hard for other countries to fight inflation. Dollar-dominated currencies are sliding lower. The Dollar continues to outperform as a safe-haven asset.
Industrial production month on month rose 0.4%, from 0.1% in the previous month. Unemployment claims have come down to 214k from 226k. The labor market shows strong growth as the number of Americans claiming unemployment benefits fell last week. The Federal Reserve reported that labor demand had come down, but conditions have eased.
Supply chain issues in the energy sector have led to a rise in energy prices. The Ukraine war persists for more than eight months, and inflation remains elevated. Inflation rates must decrease for the Fed to slow down its rate hike.
Worries about inflation are high among Americans as high costs affect every household. High prices will continue for another year, estimate experts. The supply chain needs streamlining to meet the demands of the country. For two years, the covid lockdown caused severe supply chain bottlenecks. Next was the Russian-Ukraine war which continued the already disrupted supply chain in energy and food grain availability, leading to price volatility and an employment crisis.
US Dollar Dominance Hits Stock Portfolios
The strong Dollar has hit the S&P 500. Stocks in technology and Industries, sensitive to the greenback, are the worst hit. Investors are fleeing from most asset classes, states JPMorgan Chase.
Crude prices have gone down. Nymex crude prices are trading at $86.00 per barrel. Energy prices on a month-on-month basis dropped 2.1%. The US Treasury 10-year yield is 4.163%. Gold prices are below the psychological mark at $1650. The US Treasury bond yields are increasing on expectations of further policy tightening by the Fed.
Outlook on Major Currency Pairs
Euro to US Dollar
In Europe, annual inflation is at 9.9% for September, caused by the energy crisis. Multinationals are finding it hard to repay debts in dollars.
The EUR/USD currency pair closed at 0.9860 levels. The bullish sentiment around the US Dollar suggests there is more weakness for the EUR/USD pair. A move above the 0.9900 level may bring some upside for the Euro to US Dollar currency pair in the forex market.
USD to Japanese Yen
The Japanese Yen has weakened against the US Dollar. The Japanese Yen is trading at 147.64 against the US Dollar, at a 32-year low.
The Yen’s volatile movement forced the Bank of Japan officials to step in and control speculation. The excessive volatility has become unacceptable, says Japanese Vice Minister of Finance Masato Kanda. The ultra-loose policy taken by the Bank of Japan and the aggressive rate hike decision by the Fed have weakened the Yen and strengthened the US Dollar.
British Pound to US Dollar
The British Pound to USD fell to 1.0384 in the last week of September 2022. The GBP/USD strengthened to 1.1302 levels last week. However, there is selling pressure on British Pound, as the United Kingdom is under tremendous political chaos. The expensive fiscal policy taken by the British Prime Minister Liz Truss backfired, leading to her resignation.
The US Dollar continues to outperform other currencies.