The US dollar skyrocketed to a five-month high on Tuesday as strong US economic data raised bets that the Federal Reserve will need to keep interest rates elevated for longer. Weaker economic data from China and Europe has also raised investor sentiment for the greenback, as have rising US yields and falling stocks.
Measuring the dollar against a basket of major currencies, the Bloomberg Dollar Index jumped 0.5% on Tuesday, bringing the index’s rise since mid-July to 4.5%. Given the recent trajectory of the US economic landscape, Goldman Sachs Group Inc. decided to lower its likelihood of an incoming US recession from 20% to 15%.
Simon Harvey, head of FX analysis at Monex Europe, explained that “the two main drivers of dollar strength, which are higher yields, and weak growth conditions outside of the US have been thrust straight back into the limelight.”