US Dollar Strength

The US Dollar is one of the stronger currencies right now, ranking #3 of eight with a score of +6. Interest rates are the main headwind. At around 3.6%, the US Dollar pays far less than higher-yielding peers like the dollar or pound, which makes it less attractive to carry-seeking capital. Institutional positioning is a clear tailwind — large futures traders are heavily net-long the US Dollar, among the most bullish readings in years. That is strong conviction, though a crowded long can be vulnerable to a squeeze if sentiment turns. Markets are relatively calm and risk appetite is healthy, which takes some shine off the US Dollar. As a safe-haven currency, it draws less demand when investors are confident enough to chase yield elsewhere. The underlying economy is a bright spot — tight labour markets and solid employment data give the US Dollar an extra edge over currencies where the jobs picture is deteriorating. The trend is negative — the score has dropped 12 points over recent weeks. On a valuation basis, the currency looks stretched versus its own one-year range, which raises the odds of a near-term pullback.