Following the recent economic updates, the dollar appears to have appreciated slightly. Here’s what to expect in the short- and long-term from the greenback.
Since the beginning of 2023, the value of the greenback has constantly alternated between periods of contraction and periods of expansion. These cycles have collectively led to an overall reduction in volatility, evidenced by the performance of the Dollar Index Spot (DXY).
The global economic situation, characterized by high uncertainty, has manifested itself through continuous changes in expectations regarding future decisions by central banks regarding monetary policy. This dynamic has contributed to creating a climate of instability in the currency markets, which by their nature are particularly sensitive to fluctuations in interest rates.
With these premises, what could actually lead to a drastic collapse in the price of the dollar?
What is happening to the price of the dollar? A look at the DXY
A recent analysis of the earnings and turnover of some US companies reveals a negative trend in financials, mainly attributable to flattening levels of consumption. However, the NVIDIA results remain an exception to the rule, with remarkable developments in artificial intelligence systems. Meanwhile, a pessimistic view of the US economy helped generate a risk appetite sentiment, causing Treasury yields to fall and a slight, albeit unusual, dollar strength.
The analysis of the Dollar Index (DXY) highlights how the upward trend that began in July maintains its trajectory, with the index hovering around 104 points, however above the technical level of 100 points. Graphical fluctuations have significantly reduced compared to the years 2021 and 2022, periods in which the value of the dollar has undergone unusual variations. From a graphical analysis, the DXY seems overall to be oriented down, in line with the constant decrease in interest rates, an element that could, over time, push traders to allocate their capital elsewhere.
What to expect from the DXY trend?
The US economy appears to be approaching a point of stagnation, suggesting the possibility of a pause in interest rate hikes. According to S&P Global, the US composite PMI dropped to 50.4, showing a notable decline in August. In Europe too, the situation seems to be deteriorating, albeit more markedly than in the United States, which has contributed to the depreciation of the euro, as measured by the EXY index.
In the near term, this situation could increase the demand for dollars, given the possibility that Treasury yields have peaked. In the long run, according to some experts, interest could decline in parallel with a general reduction in interest rates.
Original article published on Money.it Italy 2023-08-24 11:40:41. Original title: La corsa del dollaro non si ferma. Cosa potrebbe succedere?
