While the dollar has fallen back a touch over the past couple of days, it has held on to most of its post-payrolls gains. The DXY index is now up about 3% on the year, having regained roughly half its drop over the last two months of 2023. The greenback’s rebound has come despite the ongoing rally across most “risky assets”, which has seen the S&P 500 index breach the 5,000 level for the first time. Indeed, the inverse relationship between the DXY index and global equity markets, which had been unusually tight over much of the past two years, has broken down in 2024. Admittedly, if fears of a global recession return, that would most likely lead to a rising dollar and tumbling equity market. But, as we set out here, our view is that the continued US economic (and equity market) outperformance which we forecast is consistent with the greenback continuing to hold up well.
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