Recent analysis from Bank of America Securities emphasizes that US dollar foreign demand is shifting control from U.S. investors to global markets. The Dollar Index, which assesses the U.S. dollar against six major currencies, slightly dipped to 105.000 but still boasts over a 3% gain this year.
The influence of foreign markets is now crucial in determining the dollar’s fluctuations. The U.S. dollar remains stable during American trading hours but shows greater variability during European and Asian sessions. This shift is driven by the favorable carry and growth differentials that the U.S. enjoys.
In Europe, central banks, including the ECB, Swiss National Bank, and Riksbank, have each cut their rates by 25 basis points. On the other hand, the Bank of Japan has ended its negative interest rate policy, although yields are still low. These changes enhance the U.S. dollar’s appeal, broadening its carry and volatility ratios.
Despite some U.S.-based investors expecting a soft landing for the U.S. economy, the first quarter of 2024 still demonstrated strong growth, the second-highest among G10 nations. The U.S. growth forecasts for 2024 have increased, drawing more global investment, particularly into AI technology sectors, which in turn supports the dollar.
As the influence of US dollar foreign demand grows, more dollar liquidity from Europe seems necessary for any potential weakening of the currency.
