The US Dollar Index (DXY) shot up to its highest level in more than three weeks, recently trading just above 98.55. This large increase comes after a flurry of other positive economic data releases. Taken together, these updates have done much to increase confidence in the US economy. Already analysts have noted a huge increase in the value of the dollar against a basket of six other major currencies. This spike points to a more indefinite strength for the dominant greenback.
In case you missed it, the US Gross Domestic Product (GDP) for the second quarter was recently revised upward to a robust 3.8%. This legislative boost has released a surge of proactive optimism. The most recent weekly new unemployment claims came in at 218,000, significantly lower than the expected 235,000. A drop like this would indicate a tighter labor market and further bolster the rosy storyline so far around the US economy.
The dollar’s rally was supported by the strong rebound in durable goods orders. These orders surged by 2.9% in August, the sure sign of an economy with firepower. It’s a positive sign that demand for manufactured products is growing. It is a strong sign of the economy’s resilience in the face of continued headwinds.
The US Dollar has shown extreme strength over the past few trading sessions against almost every major currency. It has gained 0.73% vs the Euro (EUR). Further, it increased by 0.85% against the British Pound (GBP) and 0.64% against the Japanese Yen (JPY). It’s up 0.32% on the Canadian Dollar (CAD) and 0.71% on the Australian Dollar (AUD). On top of that, it is up by 0.85% vs the New Zealand Dollar (NZD) and 0.67% vs the Swiss Franc (CHF).
While the curve remains inverted, market participants are changing their tune. They’re looking forward to the next core Personal Consumption Expenditures (PCE) inflation report, scheduled for this Friday. This report will provide a deeper look into the Federal Reserve’s monetary policy. It emphasizes recent economic developments that may affect their policymaking.
If core PCE inflation prints strong, analysts say, that will sink the dollar’s position. If the data goes above or below expectations, this impact will be more extreme. Even limited indications that inflationary pressures are abating could trigger a recalibration of expectations about what the Fed will do next.