Dollar Stabilizes Amid Hawkish Fed Stance and Strong Economic Fundamentals

The US Dollar has shown signs of stabilization following a volatile month in August. According to Geoff Yu at BNY, the wave of dollar hedging that followed the dovish interpretation of the July Federal Open Market Committee (FOMC) meeting has drawn to a close.

As investors stop adding to hedge positions and adjust to a Fed committed to further tightening, the Greenback is finding a stable baseline against major trading partners. Yu noted that 'the Fed’s signal that it’s willing to continue rate hikes removes the main driver for dollar sales in early August.'

In contrast, Francesco Pesole, Frantisek Taborsky, and Chris Turner at ING retain a preference for the upside in the dollar. They argue that front-end interest rates and higher energy prices both point up.