Dollar Reaches New Highs on Strong US Economy and Widening Interest Rate Differentials
The US Dollar is experiencing a resurgence in strength, reaching new cyclical highs as measured by the DXY index. This uptrend can be attributed to the resilience of the US economy, which continues to outperform expectations. According to Brown Brothers Harriman's Elias Haddad, the US GDP has been revised upward, with Q2 growth estimated at 2.2% SAAR, and the Atlanta Fed GDPNow model projecting a 3.7% annualized growth rate in Q3.
The strong economic data is supporting consumer spending, which rose 0.6% month-over-month in August. However, inflation remains a concern, with headline PCE at 3.4% year-over-year and core PCE at 3.0% year-over-year. The Fed's target rate of 2% has yet to be reached.
The widening interest rate differentials between the US and other major central banks are also contributing to the Dollar's strength. As Haddad notes, 'USD gains are tracking widening US-G6 interest rate differentials.'