admin LONDON : On Tuesday , the dollar flourish to a 29-month high against rival currencies, while pummeling the euro to its weakest since May 2017.
The U.S. currency has been in favor for several years thanks to its relatively high interest rate and a strong economy, the ongoing trade war with China and a scramble for funding in U.S. money markets has added fuel to the fire.
The list of reasons for the dollar’s strength won’t make for easy reading for U.S. President Donald Trump, who has frequently accused other countries of manipulating their currencies and called for a weaker dollar.
The dollar’s outperformance is particularly broad, with an index compiled by Commerzbank showing that measured against a swathe of rival currencies it has risen more than 3.5% since July 1.
The euro has not declined as much, given it has held up well against a weakening yuan – China is one of the euro zone’s biggest trading partners – but the sheer size of the dollar’s rally has left the single currency down 0.5% over a similar period.
The dollar has gained almost regardless of what has happened with U.S.-China trade negotiations, which have emerged as a principal determinant of market sentiment under Trump.
When talks with Beijing have broken down, investors have piled into the dollar looking for a safe haven thanks to its deep liquid markets.
Yet when a truce in the trade war has seemed within reach, traders have also bought the greenback, anticipating an economic boost from any trade deal.
The relative outperformance of the U.S. economy has been a significant driver for dollar strength in the last two years, but it is signs of a deepening downturn in the euro zone that have played a major role recently.
According to Citigroup, the gap between the euro zone and the United States on an economic surprise index has risen sharply. Europe is now underperforming by a bigger margin than at any time since late 2017.
That corresponds with a move lower in the euro from around $1.20 to below $1.09. The euro hit a low of $1.03 in January 2017.
Euro zone manufacturing surveys last week were the most recent to miss expectations – although so have some in the United States – and a Reuters story on Monday on German economic institutes preparing to slash German economic growth forecasts again sent the euro hurtling lower.
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