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US Dollar Index Has Been Growing for Five Consecutive Weeks. Why and What’s Next?

Commentaries & Views

We used to consider the US dollar a dominant currency in 2022. One might say that it’s no longer 2022 and what’s gone is gone. However, if you’ve checked out the DXY chart in the past month, you know it has shown consistent weekly increases. Let’s unpack what has been driving these changes and what might be coming in the next few months.

On occasion, a picture is worth a thousand words. So we’ve put together a few charts for you. The first one demonstrates GBPUSD movements – one of major currency pairs that changed the trend in mid-July.

The next one we can't miss is, of course, EURUSD – showing a similar turning point.

The third and final chart showcases the US Dollar Index. The movements may be reversed, but you can see that patterns coincide. 

These three visuals tell us that the US dollar has been on the rise for five weeks in a row. It’s attributed to several underlying drivers. 

The Federal Reserve is still far from lowering the interest rate. Moreover, the inflation pushes the US regulator to maintain a hawkish policy. 

The economic situation worldwide doesn’t inspire much confidence. For example, China – a large economic zone and one of the most significant emerging markets – hasn’t achieved the expected level of growth, with its local central bank resorting to cut the key rate. 

Simultaneously, European central banks have been increasing interest rates less intensively than anticipated. A year ago, many investors thought that by now, the USD would be an outsider among other major currencies. Yet, everything turned out to be less clear-cut. While the DXY has lost nearly 4.5% in the last 12 months, it has generally grown by more than 7% since the beginning of 2022. And the trend continues.

The USD might also get support in the next months if market participants don’t observe significant indications of a rapid deceleration in the US economy. In other words, the US dollar index could have room for further increase.

However, this is just about the nearest future. The long-term outlook for the USD is unlikely to be bright. The idea of “possible recession” hasn’t faded yet, and it might become real in early 2024. Such economic conditions won’t work in favor of the dollar rate.

Nonetheless, you undoubtedly encountered multiple versions of what to expect from the USD in the last year. And many of these forecasts have proven inaccurate. Therefore, we recommend you to do your own analysis before making any investment decisions.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.