The drivers behind the dollar’s strength in recent months are largely intact, currency strategists say, after US midterm election results briefly drove the greenback lower.
The Bloomberg Dollar Spot Index tumbled on Wednesday as traders weighed the implications of policy gridlock in Washington after the Democrats won control of Congress. However, the gauge was steady Thursday even as stocks sank, and is less than 1% below the nearly 18-month intraday high it reached in October. What’s more, the options market shows traders expect it to rise into year-end.
For firms including Bank of America Corp., Standard Chartered and hedging advisory company Chatham Financial, what it boils down to is that the world’s primary reserve currency will continue to draw support from at least a couple of key sources — US economic resilience and expectations for Federal Reserve interest-rate hikes over the next year.
And while the picture is growing murkier when it comes to foreign demand for megacap tech shares, which are tumbling after the election, some traders still consider the US currency the standout option among major peers.
“I still think the dollar is king,” said Thomas Kikis, head of markets for the US and Americas at Standard Chartered.