The dollar’s recent rally has got everyone raving! In fact, some market junkies even think that what we saw this week could be the start of a new trend. They say that the dollar could already be losing its safe haven appeal… in a good way!
Analysts are once again pointing out the dollar’s recent price action. For instance, they cite that the currency has been moving alongside the S&P 500 for the past few days even though they’ve been known to share an inverse correlation.
There’s also the notable drop in EUR/USD that Pip Diddy has pointed out in his daily forex fundamental reports. Some market gurus had expected the dollar to get sold off following the approval of Greece’s second bailout as investors tend to buy higher-yielding currencies when positive news about the debt crisis break out. But instead, the dollar rallied!
This isn’t the first time we’ve heard talks of the dollar losing its safe haven appeal though. In the middle of last year, QE3 hit the headlines and investors aggressively sold the dollar. Economic gurus also said the same thing as traders flocked into the yen and the Swissy.
However, with the dollar’s positive fundamental landscape, the reasons behind such talk are a bit different now.
One of the main reasons the dollar has been in high demand as of late is the string of positive economic reports the U.S. has been rolling out. Jobs growth has surpassed expectations for three months in a row now, and retail sales growth is coming off a 5-month high.
These reports, of course, have not gone unnoticed by the Fed. Contrary to what you may have heard from Fed-haters, these policymakers aren’t blind!
They’ve been acknowledging the recent improvements in the economy, and as a result, have adopted a more optimistic outlook. And to think, it was just this January that they were forecasting such a grim future for the U.S. My, how the tides have turned!
Economic conditions overseas have also been favoring the dollar. China’s growth slowdown and the deterioration of credit quality in Europe have made U.S. assets more attractive in the global market. But as you all know, to get your hands on U.S. assets, you gotta get your hands on some dollars first!
In a way, it can be argued that what we’re seeing is a return to fundamentals. The outlook for the U.S. economy is shining at a time when others are dimming, and this has been stoking interest for the dollar. The question is, is this market dynamic here to stay?