The dollar bounced back towards its highest level in 2018 on Monday, May 7, as investors continued to bet that rising interest rates in the United States would boost the greenback.
The index measuring the dollar against a basket of currencies rose 0.2 percent to 92.749, not far from the 92.9 level – a 2018 high – it hit on Friday, Reuters reports.
The dollar has rallied heavily over the past two weeks after investors rushed to unwind short positions and bet that higher rates in the U.S. and signs its economy is performing better than other regions would feed through to a stronger currency.
Commerzbank analyst Esther Reichelt said the dollar move was the “bursting of a dollar negative bubble” and that it had further to go.
“The interest rate differentials are clearly pointing towards a stronger dollar,” she said, citing expectations the European Central Bank and the Bank of England now look less likely to raise rates as soon as had been expected.
Weaker U.S. jobs and wages data on Friday did little to temper perceptions of strength in the U.S. economy and failed to hold back the dollar’s rise, although renewed concerns about trade frictions with China could cloud its outlook.
The U.S. economy added fewer jobs than expected and the average hourly earnings, closely watched for signs of inflationary pressures, rose a less-than-expected 0.1 percent in April, leaving the annual increase at 2.6 percent.
None of this changed the perception that the Federal Reserve will likely hike interest rates at least twice, and possibly three times, by year-end.
In contrast, recent data have suggested the stellar growth seen in Europe last year is losing momentum, leading speculators to trim bets on the single currency on expectations the European Central Bank will wind down its stimulus.
Data from U.S. financial watchdog published late on Friday showed speculators’ net long positions in the euro in Chicago’s futures exchange declined only slightly in the latest week.
They held 120,568 contracts of net short positions, down from a record 151,476 set last month but still at a high level.
A wider measure of dollar positioning that includes contracts on some emerging market currencies showed net dollar shorts shrank to $18.32 billion, from a seven-year high of $28.18 billion two weeks earlier.
The dollar rose 0.1 percent versus the Japanese currency to 109.22 yen, off its three-month high of 110.05 yen.
The yen, while suffering a big drop in recent weeks, has been supported by short-covering by Japanese margin traders, especially against the Turkish lira, which fell to record lows during Japan’s Golden Week holidays.
The lira fell more than 4 percent last week versus the dollar.
