The U.S. dollar has recently reached its highest point in nearly five months, hitting a dollar index of 105.1 on Tuesday. Macquarie, a leading financial advisory firm, has advised traders to maintain a long position on the greenback, as they foresee the possibility of further gains in the near future. This surge in the dollar’s value follows a sharp increase in U.S. manufacturing data, showing the first expansion since September 2022.
The unexpected rise in manufacturing PMI led to an uptick in U.S. bond yields, with the 10-year yield climbing to 4.40%. This increase in yields provided solid support for the dollar’s upward momentum. Macquarie analysts had predicted this response in the bond market since mid-March, foreseeing a climb back to the February highs of around 4.35%. The prevailing sentiment is that strong U.S. economic data will keep the Federal Reserve cautious about lowering the policy rate, particularly in light of high inflation numbers from January and February.
This week’s speeches by Federal Reserve officials will be closely watched, as they could serve as a new catalyst for further dollar gains. Macquarie suggests that these speeches may reveal a more hawkish stance than Chair Powell’s recent dovish statements, aligning with the Fed’s broader monetary policy outlook. As a result, the greenback is expected to maintain its strength leading up to the release of the March U.S. inflation reports.
Macquarie’s analysts project a period of firmness for the dollar in the coming weeks, especially when compared to major currency counterparts like the Euro, Pound, Canadian Dollar, and Australian Dollar. This relative outperformance is tied to the strength of U.S. economic data and the looming threat of inflation in the country. Traders are advised to closely monitor economic indicators and Fed communications during this critical period to capitalize on potential dollar gains.
The recent surge in the U.S. dollar has sparked optimism among traders, with Macquarie’s recommendations to stay long on the greenback gaining traction. The interplay of strong economic data, rising bond yields, and Fed policy outlooks all point towards a positive trajectory for the dollar in the near term. By staying informed and attuned to market developments, traders can position themselves strategically to benefit from potential dollar appreciation in the coming weeks.