The trade-weighted US Dollar Index against a basket of 26 currencies is up more than 5% from its July low. Economists at the National Bank of Canada analyze Greenback’s outlook.
Interest rate differentials support Dollar appreciation
The USD's strength has been supported by widening interest rate differentials with its major trading partners. US yields were driven higher by resilient inflation and stronger-than-expected payroll job creation.
At this point, we still expect some USD appreciation until early 2024, which could be further boosted by renewed geopolitical tensions with the opening of a new front in an armed conflict, this time in the Middle East.
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Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
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Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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