**U.S. Dollar Strength Extends Post-June Rally as Global Economic Conditions and Central Bank Divergence Fuel Demand**
*Adapted and expanded from the original article by Rosenberg Research via Futunn News.*
The U.S. dollar (USD) has continued its strong performance after June 2024, with multiple macroeconomic forces converging to extend its upward trajectory. Driven by a combination of domestic economic resilience, central bank policy divergence, a shift in global risk sentiment, and strengthening interest rate differentials, the greenback has rebounded against its major peers. According to Rosenberg Research, the dollar’s bullish direction is consistent with historical patterns during periods of tighter monetary policy and rising geopolitical uncertainty.
This article provides an expanded analysis of the dollar’s upward path since mid-2024, considers the global dynamics behind it, and outlines implications for the foreign exchange (Forex) market going into the latter part of the year.
## Current Landscape: USD Momentum Builds
As of the latest data in July 2024, the U.S. Dollar Index (DXY), which measures the dollar against a basket of major global currencies, has recorded a steady climb from its May lows. The continued strength follows the Federal Reserve’s resolute stance on keeping interest rates elevated for a longer period, contrasting sharply with more dovish pivots by other major central banks.
### Key Contributors to USD Strength:
– **U.S. Economic Outperformance**: Despite global economic headwinds, the U.S. economy has remained resilient. GDP growth exceeded analyst expectations in Q2 2024, with strong performance from the services sector, robust labor markets, and sustained consumer spending.
– **Federal Reserve’s Hawkish Position**: The Federal Reserve has emphasized its commitment to controlling inflation, which still sits above the 2% target. Chair Jerome Powell and other policymakers have signaled that rate cuts will not be considered until inflation demonstrates sustained declines, supporting higher yields on U.S. assets.
– **Interest Rate Differentials**: The U.S. 10-year Treasury yield hovers near 4.4%, while peers such as Germany’s bund (about 2.5%) and Japan’s government bond yields (under 1%) lag considerably. These differentials incentivize investors to favor U.S. assets, adding upward pressure on the dollar.
– **Diverging Central Bank Policies**: While the Fed maintains a hawkish stance, the European Central Bank (ECB), Bank of England (BoE), and Bank of Canada (BoC) have hinted at loosening monetary policies. This divergence reinforces the greenback’s relative attractiveness.
– **Geopolitical and Economic Uncertainty**: Global risk aversion, sparked by escalating tensions in Eastern Europe and Middle East instability, is also driving investors toward the perceived safety of U.S. assets and the dollar.
## Analysis by Currency Pair
The USD has appreciated notably across a range of currency pairs, reflecting broad-based strength.
### EUR/USD: Euro Pressured by Weak Eurozone Outlook
The euro has continued its downward trajectory against the dollar, trading below 1.07 as of early July 2024. Disappointing data from the Eurozone, especially in Germany and France, has weighed heavily on the euro.
– The Eurozone economy contracted slightly in Q1, and sentiment surveys suggest stagnant growth for Q2.
– Core inflation in the bloc has cooled more rapidly than in the U.S., giving the European Central Bank room to begin easing.
– Markets are pricing in at least one additional ECB rate cut in 2024.
### GBP/USD: Sterling Tumbles Amid Political and Economic Concerns
The British pound has fallen below 1.25 against the dollar, reflecting a mix of subdued economic indicators and market caution around the recent U.K. general elections.
– U.K. inflation is falling, with the core measure dipping below 4% for the first time since 2022.
– The Conservative Party’s loss and a
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