European turmoil triggers safe-haven sentiment, pushing the US dollar to a new high for the year

Recently, as US Treasury yields rise and investors seek safe-haven assets, the US dollar is approaching a new high in 2024.

According to Bloomberg, the Bloomberg Dollar Spot Index has almost reached last November's high, with technical indicators showing that the US dollar's strength still has room to rise. The premium for hedging the US dollar's appreciation against a basket of currencies in the next three months has climbed to the highest level in over a year.

Rodrigo Catril, a strategist at National Australia Bank (NAB), stated that the recent safe-haven appeal of the US dollar could act as a catalyst for breaking through to the upside. Despite the temporary easing of political uncertainty in France, markets often "shoot first and ask questions later," so the political situation in France in the coming weeks is likely to continue to support the US dollar.

Leaders of the left-wing political party in France called for unity at their first campaign rally, while European Central Bank officials believe that the turmoil that swept through the French markets last week is not cause for alarm. These measures have to some extent calmed investors' nerves, but many remain highly vigilant of any shifts in sentiment, which could reignite demand for the US dollar.

Over the past four weeks, the US dollar has been strengthening, boosted by high US interest rates and recent political turmoil. The US dollar has broken through its medium-term weekly downtrend, which is also a bullish signal for investors. However, if data continues to show a cooling off of the world's largest economy, the United States, it may increase the risk of the Federal Reserve cutting interest rates earlier than expected by the market.

During the Asian trading session on Tuesday, the US dollar stabilized, showing strength against all G10 currencies except the Swiss franc and the Swedish krona this month. Traders will also closely monitor the upcoming US election, which could inject new uncertainty into the market.

Marko Kolanovic, a strategist at Morgan Stanley, wrote in a report, "The US dollar's current performance exceeds US Treasury yields, so if market volatility decreases, the US dollar may weaken in the short term. However, the upcoming US election will ultimately limit the US dollar's weakness."