Tighter Fed policy and global growth concerns support stronger USD – MUFG

The US dollar has continued to strengthen at the start of this week with the US Dollar Index rising back above the 93.000-level and closer towards the year to date high from April at 93.437. As Lee Hardman, Currency Analyst at MUFG Bank notes, Fed QE taper comments encourage a stronger USD.

The US dollar is deriving support the rising US yields 

“The US dollar and US yields have been lifted by the positive follow through from last week’s robust Nonfarm Payrolls report for July which has reinforced speculation over tighter Fed policy ahead.”

“Atlanta Fed President Bostic believes that the Fed is ‘well on the road to substantial progress toward our goal’, and if ‘we are able to continue this for the next month or two I think we would have made the substantial progress toward the goal and should be thinking about what our new policy position should be’. These comments help reinforce bullish sentiment towards the US dollar in the near-term.”

“We expect the US dollar to remain bid in the near-term and to continue challenging short positions that have been built up. Position unwinding could be less important though in driving upward US dollar momentum after the large position adjustment that has already taken place in recent months.”