Stronger growth and higher rates should mean a stronger greenback
HERE IS THE tale of the dollar so far in 2021. It came into the year on a declining trend. A lot of people were mildly chary of its prospects. The gist was that people had bought a lot of dollars last year. They might wish to sell some. There has since been a dramatic upward revision to forecasts for GDP growth in America. This has been mirrored in sharply rising Treasury yields. Growth upgrades; higher interest rates; both are good for currencies. The result has been a stronger dollar.
It is not sufficient for a strong dollar that America does well; others must also be doing badly. â€œIf the US economy grows incredibly fast and nowhere else does, the dollar will go up,â€ is how Kit Juckes of SociÃ©tÃ© GÃ©nÃ©rale, a bank, puts it. The question is: can it keep going up and for how long? The dollar usually provokes strong feelings in the currency fraternity. It is either loved or hated. That is not the case now, which is remarkable. There may be a strong-dollar story. But there is no really strong story about the dollar.