Fundamental Comment

US dollar hits one-year high, raising questions about outlook


The U.S. dollar hit a one-year high on Thursday as investors continued to deem the green currency as the best asset to hold at the meantime.

The dollar index, which tracks the green currency’s movements versus a basket of major currencies, climbed to a peak of 95.27. That was the highest level since mid-July 2017.

Still, the green currency is taking advantage of both safe haven demand and investors looking for higher yield.

Amid the undergoing trade war between the U.S. and China, as well as other U.S. allies, the dollar is seen as a refuge asset.

On the other hand, the planned monetary tightening by the Federal Reserve and the bright U.S. outlook have boosted the appeal of the dollar as the most promising investment.

Hence, as long as the dollar trade is continuing and U.S. earnings are showing good results, investors would continue to hold the U.S. dollar.

The dollar’s strength meanwhile does not rely only on the euro’s weakness, as the six-currency index is taking advantage of the sharp fall in other currencies, most notable the yen and pound.

Gold set a one-year low at $1216 an ounce today, as some investors resumed their exodus from commodity funds.

U.S. fund investors withdrew $1 billion from commodity funds, including those invested in gold, the largest drawing since July 2017, Investment Company Institute (ICI) data showed on July 11.

However, some analysts believe that the U.S. dollar is overvalued and would soon halt its rally and retreat from its record highs.

The latest Big Mac index from the Economist signaled that the dollar was overvalued against major currencies, where the green currency was overpriced by 30 percent against the pound and 16 percent versus the euro.

The key events left this week are earnings reports from major U.S. companies, including Microsoft, as well as U.S. weekly jobless claims and the Philadelphia Fed Business Outlook Survey and the Conference Board’s U.S. Leading Index due on Thursday

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