Dollar Strength Seen Sustainable as Fed Credibility Soars
Commerzbank's analyst Thu Lan Nguyen believes that the current strength of the US dollar is sustainable in the short term. According to her, the Federal Reserve (Fed) has regained credibility after a hawkish meeting, which supports the dollar's recent rise. The EUR/USD pair has stabilized just below 1.15, suggesting it may have found a floor.
Nguyen views the expected rate hike in December as a key factor supporting the dollar's strength. However, options markets suggest investors remain unconvinced about the durability of this trend. Risk reversals for EUR/USD have declined recently, indicating that hedges against euro weakness are currently more expensive than hedges against dollar weakness.
Despite this, Nguyen notes that market participants are not yet fully convinced that the dollar's strength will prove durable. The current state of the market is far from the levels observed before the start of the Trump presidency, when the dollar was significantly weaker.