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(Bloomberg) — A gauge of the dollar’s strength rose to its highest level since November as the first interest-rate reduction from the Federal Reserve appears distant.
The Bloomberg Dollar Spot Index rose 0.4% to 1,271.36 on Wednesday, marking a new peak for the year. The greenback has been gaining in 2024 as the Fed’s higher-for-longer policy leaves a wide interest-rate gap with other leading economies. The yen declined to the weakest level since 1986 sparking risks of another intervention by the Japanese authorities, who maintain their interest rates extremely low.
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While the European Central Bank and Bank of Canada kicked off their monetary easing cycles in early June, the US central bank held interest rates at the highest level in more than two decades.
To analysts at JPMorgan Asset Management, the dollar stands to keep benefiting as the Fed keeps borrowing costs high relative to other central banks. At some point, though, they warned that support could peter out.
“Going forward, stabilizing interest rate differentials and narrowing growth differentials may put a lid on the dollar, keeping it strong (but not stronger) for longer,” they wrote in a mid-year investment outlook. “We may have passed peak optimism about the US economy and peak pessimism about the rest of the world.”
Still, speculative traders have been loading up on contracts that would benefit from a stronger dollar, the most recent Commodity Futures Trading Commission data suggest. Over the last two weeks through June 18, they’ve added more than $12 billion worth of bets on greenback gains.
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