The US dollar’s rebound has gained momentum this week amid hawkish rhetoric from Fed officials and more evidence out of the US – notably retail sales and jobless claims – of continued resilience in the economy there. So far this year, currency markets have echoed the “win-win” dynamic that has underpinned dollar strength over the post-pandemic period: the greenback has generally risen both when risk sentiment has been strong amid US economic outperformance and when risk sentiment has faltered. The former backdrop was the case this week, as dollar strength coincided with key US equity benchmarks at or near all-time highs and rising Treasury yields. Next week, announcements by the BoJ, ECB and other central banks (as well as January PMI data) could stall the greenback’s rebound. But given how far it fell last quarter, our sense is that there is scope for the dollar to rebound further over the coming weeks.
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