Dollar Rally Halted by Global Rate Tightening and Trade Deficit
The US Dollar's recent rally has been supported by widening rate differentials between the US and other major economies, according to Elias Haddad of Brown Brothers Harriman. However, Haddad notes that this upside is constrained by tightening monetary policies in other central banks.
Haddad attributes the modest pullback in oil prices to reports of a potential deal to reopen the Strait of Hormuz, which has eased global bond selling and cooled the Dollar's rally. Despite this, he believes that the USD can continue to benefit from widening US-G6 interest rate differentials.
The constraint on the Dollar's upside is partly offset by strong foreign demand for US securities. In the twelve months to July, foreign investors accumulated $1754 billion of long-term US securities, more than twice the -$743 billion US trade deficit.