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Is the dollar reaching its peak?

Is the dollar reaching its peak?
  • 04/07/2022: US – Bank Holiday (Independence Day)
  • 05/07/2022: UK – S&P Global/CIPS UK Service PMI
  • 06/07/2022: US – ISM Non-Manufacturing PMI June
  • 06/07/2022: US – FOMC Minutes
  • 08/07/2022: US – Non Farm Payrolls

 

The Dollar performed exceptionally well through the first half of 2022. Due in no small part to the economic tightening regime of the Federal Reserve (FED), amid forecasts of a global slowdown and the reliability of the currency’s renowned safe haven status. The question now is – can the Greenback continue to rally into territories not seen for 2 decades or are we nearing the peak?

Initial reactions to the aggressive stance of the Feds 75 basis point interest rate hike in June are now beginning to dampen. Other central banks are following suit – The European Central Bank (ECB) is of particular interest. The ECB have been one of the most dovish central banks over the last decade, but even they have had to give in to inflation risks, and are on the interest rate hike train. As the largest traded currency pair in the world, this could go a long way to stalling USD gains.

Recession Fears are also limiting gains for all major currencies. How far can we push interest rates before the health of the market is permanently damaged? Where fear prevails, profits on income need to be certain to stop the threat that significant losses will result from maintaining this high rate exposure. The Bank of England  (BOE) in particular has seen a tricky three months as inflation soared and growth slowed to a crawl. Their reaction now looks like it is too little, too late with headline inflation now over 9% and forecasts predicting double-digits in the coming months. With the price of fuel and food continuing to spiral out of control, the BOE may need to act fast to get price pressures under control.

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