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Positive optimism about the U.S. economy picks up the dollar.
A dream time
The dollar has jumped up very late. The strength could easily last for a while.
The
US Dollar Index
(ticker: DXY), which shows the value of the dollar against a basket of currencies, went above 92 on Friday, reaching its highest level since the end of November. The greenback has been up about 2% in the last two weeks.
Driving the pros has been a clearer vision for the U.S. economy. Daily Covid-19 vaccine inoculations have run at a strong pace, a trend that began in January, when shots found arms at speeds several times greater than they were in December.
That should reduce the need for the lock-outs that affected the economy in 2020. Gross U.S. gross domestic product is expected to grow in the middle single-digit numbers in percentage terms this year , but there is potential for a better outcome.
RBC Capital Markets economists said in a recent research note that home growth could exceed 8% this year. The trillions of dollars spent by the government to boost the economy last year have boosted housing savings, and increased costs in jobs.
That establishes a potential cost awakening as states reopen and jobs return. The overall economic stimulus in the US has reached 38% of US GDP, according to data from Bank of America, compared to the euro area stimulus of just 21% of the bloc’s economic output. That puts the U.S. economy on a faster recovery path.
Yield on 10-year Treasury debt has been rising as expectations for faster economic growth make it more likely that inflation will also rise. These higher yields make the country’s bonds more attractive, which increases demand to own dollars.
10-year Treasury yields have fired up 1.57% from 1% at the end of January. “The rise in government bond yields in the U.S. and other developed markets this year has had a significant impact on money markets and, if continued, would challenge our outlook for a weaker dollar,” wrote Jonas Goltermann. economist at Capital Economics.
Many projections for 10-year Treasury yields reach nearly 2% by the end of the year. Yields in other economies would have to rise sharply to signal such a rise, so the gain may continue with the dollar ‘s rate hike.
Write to Jacob Sonenshine at [email protected]