Macroscope | Why the strong US dollar should start coming down to earth soon
- The war in Ukraine and the Federal Reserve’s fight against inflation have made the US dollar the go-to currency for safe-haven protection
- But now that all the bad news is factored in and inflation is slowing down, dollar bulls are starting to hit the exits from the dollar trade
In the foreign exchange markets, there is no such thing as a forever trade and what goes up must inevitably come down. It’s the fundamental law of gravity that once sure-fire bets ultimately reach their zenith, they tend to go into reverse.
The war in Ukraine, the deteriorating geopolitical outlook and the US Federal Reserve’s fight against inflation have made the US dollar the go-to currency for safe-haven protection. But now that all the bad news is factored in, dollar bulls are starting to hit the exits from what has been a very overcrowded trade in the past two years. The great unwind is already under way.
The other good news was that the core inflation rate, excluding food and energy prices, eased back to 6.3 per cent in October from 6.6 per cent the previous month, underlining that the wave of price rises which has buffeted the United States economy since Russia invaded Ukraine in February may be past its worst.