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Resurging U.S Dollar reign Amid High Inflation

·2 min read

With energy prices surging, concerns of inflation crimping economic growth are resurfacing while the Federal Reserve is also pressed to act sooner in normalizing policy against the safe-haven currency.

After climbing nearly 0.5% over the past two sessions, the dollar index, which measures the greenback against six rival currencies, was little changed at 94.237 on Thursday morning in London. A one-year high of 94.50 was achieved last week.

Over the past month, the index has moved above the key resistance level at 93.50, which was the highest level since April.

As well as the 25-day and 50-day moving averages, the Relative Strength Index has been rising, which supports the bullish view.

The dollar index, therefore, is likely to rise. At this point, it will reach 96, which is approximately 1.9% higher than where it is now.

While U.S. Senate Republican Mitch McConnell announced his party would allow an extension of the federal debt ceiling into December, traders were on edge over the ongoing negotiations over the U.S debt ceiling.

Inflationary pressures, which the Federal Reserve has mainly predicted will be temporary up to now, are expected to diminish starting in November, followed by a rate increase.

The Fed has also focused on employment, and Friday’s closely watched non-farm payroll report could provide more insight into when it may next act.

With a consensus forecast of 473,000 new jobs in September, economists believe the labor market continues to improve.

With declining infections with COVID-19, American payrolls increased more than expected in September, as an increase in travel, dining out, and other high-contact activities eased the impact of the pandemic.

The dollar index has been up around 5% against majors this year, following the rise in U.S Treasury yields. In the past month, more than half of these gains were recorded, a trend that is expected to continue in the coming year.

Nevertheless, yields on Treasury securities won’t keep rising indefinitely. At some point, they’re going to stabilize, and I think they’re going to put downward pressure on the dollar, which is why some currency experts expect it to weaken somewhat further.

After reaching a new peak in March 2020, some currency experts expect the dollar to enter another long-term bearish cycle.

This article was originally posted on FX Empire