XM Group | Oct 09, 2023 08:16AM ET
Dollar sizzles
The US economy continues to display impressive resilience. Economic growth accelerated over the summer and is projected to have reached an annualized 4.9% in the third quarter according to the Atlanta Fed GDPNow model, as consumers continue to spend and the labor market remains in great shape.
With the economy not slowing down, the Fed has adopted the view that interest rates will need to remain higher for a longer period of time to defeat inflation. This notion coupled with a sharp increase in debt issuance to fund budget deficits has pushed US bond yields to their highest levels since the financial crisis, turbocharging the US dollar.
In contrast, there’s little to suggest the slowdown in Europe or China is approaching its conclusion. Leading indicators continue to paint a gloomy picture for both economies and stimulus measures have been scarce. Hence, the theme of American exceptionalism remains intact for now.
The charts tell the same story as a ‘death cross’ has formed in euro/dollar, with the 50-day moving average crossing below the 200-day one. That’s usually a negative sign. The most important level to watch on the downside is the recent low near 1.0450, while on the upside, any advances could stall around the 1.0600 region.
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