US Dollar Index to climb towards the 96.00 level into year-end – MUFG

The US dollar is in demand heading into year-end. The US Dollar Index (DXY) hit an intraday high on Wednesday of 94.432 which is the highest level since the same period of last year. As fundamentals align for a stronger USD, economists at MUFG expect the DXY to hit the 96.000 level.

Global growth slowdown is boosting USD demand

“The next important resistance level is provided by the high from 25th September 2020 at 94.742. On that occasion that proved to be a bearish turning point for the greenback. However, on this occasion fundamentals are aligning in favour of an extension of USD strength heading into year-end.”

“With the Fed shifting in a more hawkish policy direction, there still appears scope for the US rate market to price in more tightening into the coming years and helping to support a stronger US dollar.”

“The relative appeal of the US dollar is continuing to be boosted in the near-term by building concerns over the outlook for global growth.”

“The energy price shock is expected to have more of a dampening impact on growth outside of the US which further boosts the relative appeal of the USD in the near-term.”

“We expect the US Dollar Index to head towards the 96.000-level.” 

“For the US dollar’s bullish trend to reverse it would require a turnaround in the current bullish fundamentals. Potential triggers include: i) the global slowdown prompts the Fed to adopt a more cautious stance towards tightening policy, or ii) global growth concerns begin to ease. However, it appears that neither are likely in the near-term.”