(Bloomberg) — The dollar is flirting with a new 2024 high as elevated US Treasury yields and investors seeking shelter from political uncertainty in Europe flock to the world’s reserve currency.
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The Bloomberg Dollar Spot Index is a whisker away from levels last seen in November as technical indicators reveal the greenback’s strength has room to run. The premium paid to hedge against the US currency gaining relative to falling over the next three months against a basket of peers has risen to the highest level in over a year.
“Near term, the greenback safe haven appeal could be the catalyst for a topside break,” said Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney. While the political uncertainty in France appears to be taking a “breather” for now, “markets like to shoot first and ask questions later — so over coming weeks the French political uncertainty is dollar supportive.”
Leaders of France’s left-wing parties have called for unity in their first campaign rally and European Central Bank officials see no cause for alarm in the market turmoil that gripped the nation last week. The moves have helped somewhat to sooth investors’ jitters, though many remain on high alert for any turn in sentiment that could reignite a stampede for the greenback
The dollar has advanced for four weeks as high US interest rates and the recent political upset bolsters the appeal of the currency. A break through its medium-term weekly downtrend was also a bullish signal for investors.
Still traders may be walking a tight rope if data continues to show signs that the world’s biggest economy is cooling, ratcheting up risks the Federal Reserve may cut rates sooner than markets are expecting.
The US currency consolidated in Asian trading Tuesday, and has strengthened against every Group-of-10 peer this month except for the Swiss franc and Swedish krona. Traders will also be keeping a close eye on the looming US election, which is poised to inject fresh uncertainty into markets.
“The dollar is overshooting US yields, so can weaken in the near-term if volatility subsides,” JPMorgan Chase & Co. strategists including Marko Kolanovic wrote in a note. “But US elections will ultimately limit dollar weakness.”
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