European political storm triggers safe-haven demand, pushing the US dollar close to a new high in 2024
As the European political storm triggers safe-haven demand, the US dollar is approaching a new high in 2024. With the rise in US Treasury yields, investors are flocking to the world's reserve currency, and the US dollar's strength still has room to rise. Political uncertainty in France may support the US dollar. The US dollar has risen for four consecutive weeks, with traders closely watching the uncertainty that the US election may bring. Strategists at Morgan Stanley believe that the US dollar is surpassing US yields, but the US election will limit the weakness of the US dollar. The US dollar has appreciated against all G10 currencies this month
Zhitong Finance APP noticed that as the US Treasury bond yields rise and investors flock to the world's reserve currency due to political uncertainty in Europe, the US dollar is approaching a new high in 2024.
The Bloomberg Dollar Spot Index is just a step away from its level since November last year, and technical indicators show that the US dollar's strength still has room to rise. The premium for hedging against the US dollar's appreciation against a basket of currencies in the next three months has risen to the highest level in over a year.
"Short-term, the safe-haven appeal of the US dollar may be the catalyst to drive its breakthrough," said Rodrigo Catril, a strategist at National Australia Bank Limited in Sydney. Although political uncertainty in France seems to be "easing" for now, "the market likes to act first and ask questions later - therefore, in the coming weeks, political uncertainty in France will support the US dollar."
Leaders of left-wing parties in France called for unity at their first campaign rally, and European Central Bank officials did not seem alarmed by the market turmoil that plagued the country last week. These measures have to some extent eased investors' nervousness, although many remain highly vigilant in case any change in sentiment may reignite demand for the US dollar.
Due to the attractiveness of the currency from high US interest rates and recent political turmoil, the US dollar has risen for four consecutive weeks. Breaking the medium-term downward trend for the week also sent a bullish signal to investors.
If data continues to show signs of a cooling US economy, traders may be walking on thin ice, increasing the risk that the Federal Reserve may cut interest rates earlier than expected by the market.
The US dollar was consolidated in Asian trading on Tuesday and has appreciated against all G10 currencies this month except the Swiss franc and Swedish krona. Traders will also continue to closely monitor the upcoming US election, which could inject new uncertainty into the market.
"The US dollar is surpassing US yields, and if volatility weakens, it may weaken in the short term," wrote strategists at Morgan Stanley, including Marko Kolanovic, in a report. "But the US election will ultimately limit the weakness of the US dollar."