Currencies: The U.S. dollar strikes back: What’s next after August rally

by | Aug 31, 2023 | Stock Market

“De-dollarization” may be an unwieldy 2023 buzzword in financial markets, but that didn’t stop the U.S. currency from extending a significant bounce in August. The question is whether that momentum can continue. The ICE U.S. Dollar Index
a measure of the currency against six major rivals, including the euro
and Japanese yen
slumped to a 15-month low in mid-July before bouncing by around 4%, according to FactSet. It’s on track for an August rise of around 1.6%. That’s enough for the index to turn positive for 2023, with a year-to-date gain of 0.4%.

Check out: Why Washington and Wall Street are worried about the ‘de-dollarization’ threat What changed? A solid run of strong U.S. economic data — figures that left the U.S. economy looking stronger than its rivals — gets the credit. “FX returns over the past month appear to have been affected significantly by how 2024 GDP (gross domestic product) growth expectations have evolved in the last quarter, and we expect this trend to continue,” said strategists Kit Juckes and Olivier Korber of Société Générale, in a Thursday note. “The U.S. was the only G-10 economy to see upward revisions to growth forecasts, and that helped the dollar outperform the rest of the G-10 currencies this month,” they wrote (see chart below). G-10 is foreign-exchange trader language for 10 of the world’s most heavily traded — and liquid — currencies.

Société Générale

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