Title: The U.S. Dollar Gains Strength Amid Weakness in Global Competitors
Original Author: Alex Kuptsikevich – Senior Financial Analyst at FxPro
Original Source: https://fxpro.news/market-overview/the-dollar-is-capitalising-on-its-competitors-weakness-20251121/
The U.S. dollar continued its upward trajectory in global currency markets, finding renewed strength by capitalizing on the relative weakness of other major currencies. Despite mixed economic signals from the U.S. and global markets, the dollar is benefiting from safe-haven demand, institutional repositioning, and evolving central bank policies across key economies.
The most recent movements in the currency market suggest the dollar is gaining ground not because of strong domestic economic data or expectations of aggressive monetary tightening, but due primarily to the relative underperformance of its primary rival currencies. In particular, the euro, British pound, and Japanese yen have all shown vulnerability, each weighed down by region-specific economic concerns and expectations of dovish monetary policy.
Here is an in-depth look at how global macroeconomic developments are enabling the U.S. dollar to attract capital flows and outperform most of its rival currencies.
U.S. Dollar Index Pulls Back, Then Finds Support
– The U.S. Dollar Index (DXY), which measures the dollar’s strength against a basket of six major global currencies, saw a notable upward surge following a period of short-term correction.
– After falling below 104.00, the index found support and reversed higher, rallying notably to around 105.00.
– The technical backdrop remains supportive. The dollar has been climbing, signaling strong resilience and renewed buying interest at lower levels.
What is particularly noteworthy is that the dollar’s continued appreciation is happening despite:
– Broad market speculation that the Federal Reserve might soon pivot toward rate cuts in 2024.
– A backdrop of moderating inflation data according to recent U.S. consumer price index (CPI) releases.
– Declining Treasury yields, especially at the long end of the curve.
Interpreting this market behavior suggests the dollar’s strength is less about aggressive Fed tightening expectations and more a result of capital repositioning due to weakness in foreign currencies.
Euro Struggles Amid Weak Fundamentals
The euro has been under pressure over the last few weeks as data and forecasts point to weakening prospects for the Eurozone economy.
Key drivers of euro weakness:
– Economic stagnation: Germany, the EU’s largest economy, has been facing industrial contraction and weaker-than-expected GDP numbers. Issues in China, a major export destination for Germany, further compound the problem.
– Dovish monetary outlook: The European Central Bank (ECB) appears increasingly likely to pause rate hikes or consider rate cuts as inflation decelerates and growth deteriorates across member states.
– PMI weakness: Soft purchasing managers’ index (PMI) data in services and manufacturing weigh on growth expectations.
The EURUSD pair recently slipped below 1.0700 and failed to mount a meaningful recovery. Technical indicators point to sustained downside pressure unless significant policy or economic surprises occur.
British Pound Shows Limited Momentum
Cable (GBPUSD) continues to trade within a constrained range, finding difficulty in reclaiming previous highs due to macroeconomic bottlenecks in the UK economy.
Factors weighing on the pound include:
– High inflation persistence: Although inflation is gradually cooling, it remains elevated relative to EU and U.S. levels, prolonging uncertainty around monetary policy positioning.
– Lack of growth: UK’s GDP growth remains sluggish as businesses and consumers face tight financial conditions.
– Monetary policy divergence: While the Bank of England hints at keeping rates elevated, markets no longer expect aggressive rate hikes. This limits the scope for upward pressure on the pound.
As a result, GBPUSD continues to capitulate near its recent highs, failing to capitalize on any dips in the dollar, suggesting limited market confidence in sterling over the near term.
Japanese Yen Ongoing Weakness Reasserts Itself
Read more on EUR/USD trading.