Strong U.S. economy sends dollar bears into hibernation

By Jerry  Published On March 5, 2024
NEW YORK, March 5 (Reuters) – A stronger-than-expected U.S. economy is buoying the dollar, frustrating investors who had bet the currency would wilt under a barrage of interest rate cuts that have yet to materialize.
The dollar index (.DXY), opens new tab, which measures the buck against a basket of its peers, is up 2.4% year-to-date. Net bets on the dollar in futures markets swung positive last month for the first time since late November, Commodity Futures Trading Commission data showed.
Driving the U.S. currency’s stubborn strength is a robust U.S. economy that has made the Fed hesitant to ease monetary policy too quickly and risk an inflationary rebound.
U.S. gross domestic product grew at a 3.2% annualized rate in the fourth quarter. By contrast, the eurozone’s economy stagnated last year, China faces a deepening property crisis, and Japan unexpectedly slipped into recession at the end of 2023.
While the U.S. economy has remained resilient, “there is no significant evidence Europe and China are picking up,” said Thierry Wizman, global FX and rates strategist at Macquarie, who has become more neutral on the dollar after his bearish outlook last year. “That’s the reason people have had this change of heart” on the dollar, he said.
The dollar’s strength will be tested this week as investors brace for Fed Chairman Jerome Powell to testify before lawmakers on Wednesday and Thursday and await U.S. employment data at the end of the week. Signs that the Fed is sticking with its “higher for longer” messaging on rate cuts or that the U.S. economy continues to stay strong could support the dollar’s rally.

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