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Go long US dollars this week

by SuperiorInvest

Investing.com – The US dollar hit its highest level in almost five months on Tuesday and Macquarie advises traders to hold long positions in the currency for the potential for further gains.

It rose to 105.1 on Tuesday, its highest since Nov. 14, adding to strong gains on Monday after U.S. data unexpectedly showed the first manufacturing sector expansion since September 2022.

The stronger-than-expected release sparked a sharp rise in US yields, with the benchmark 10-year yield rising as high as 4.40%, providing support to the dollar.

“We have not been overly surprised by the bond market response, as we have said since mid-March that the shakeout in the bond market was not over and that 10-year yields would rise back to their February highs. , around 4.35%,” said Macquarie analysts, in a note dated April 2.

Relatively strong data in the United States would condition a data-dependent Fed to be more cautious in cutting the official interest rate, and caution would also be induced by the high inflation figures in January and February and the risk of negative supply shocks.

This highlights this week's speeches from Federal Reserve officials as they could be a new catalyst for the dollar's gains, “as they may indicate that Powell's dovish stance is not representative of the nineteen-point Federal Reserve, nor the median FOMC, which is more aggressive.” Macquarie said.

Analysts at the bank expected the dollar to hold firm, at least during the critical period between now and the release of March U.S. inflation reports.

“That's because the dollar will do well against its major peers (EUR, GBP, CAD, AUD) when US economic data is still relatively outperforming, when inflation remains a bigger threat in the US than in Europe, and when geopolitical concerns are arising again.”

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