Fundamentals remain compelling for an even stronger USD – MUFG

The US dollar has continued to strengthen at the start of this week resulting in the DXY rising up back above the 109.00 level. Economists at MUFG Bank believe that it is hard to argue against an even stronger US dollar in the coming months.

Fed policy and European energy woes boost relative appeal of US dollar

“The strength of the US dollar reflects expectations that the Fed will continue to deliver a relatively hawkish policy message at this week’s Jackson Hole symposium by reiterating that it still has work to do lifting rates to get inflation under control despite recent evidence that inflation pressures are starting to ease albeit from already elevated rates.”

“The strength of the US dollar was boosted further by the worsening negative energy price shock in Europe. The latest jump in gas prices follows the announcement at the end of last week from Gazprom that it is planning more maintenance work on the Nord Stream 1 pipeline from early next month which has stoked fears that it could be used as another excuse by Russia to further reduce supply from the already depleted rate of around 20% of the norm.”  

“In the current difficult circumstances, it is hard to argue against an even stronger US dollar in the coming months with a dovish Fed pivot looking less likely in the near-term as well.”