US Dollar Index: The Dollar Pulls Back, Allowing Its Peers To Rally

The US dollar today pulled back slightly following the two-day rally that pushed it to highs last seen in May 2002. The world’s reserve currency fell slightly, allowing its peers, such as the British pound and the euro, to rally higher.

The dollar pulled back earlier in today’s session. Still, things changed following the release of the Conference Board’s US consumer sentiment data, which came in at 108.0, beating analysts’ estimates set at 104.0.

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At writing, the dollar had shifted gears and started gaining against some of its peers, including the Japanese yen, the British pound and the Australian dollar. The dollar’s strength was also driven by the upbeat new home sales data, which was recorded at 685K versus expectations of 500K.

Investors continued to prefer the dollar given the positive  US economic data, which could convince the Federal Reserve to maintain its aggressive monetary policies and keep raising rates at its next meeting.

Other central banks continue to catch up to the Fed, with the European Central Bank promising further rate hikes to cool down inflation as it warns businesses that the rate hikes would lead to weaker consumer demand.

The dollar strengthened against its safe-haven peer, the Japanese yen, as the Bank of Japan’s market intervention failed to translate into a sustained rally for the yen. As a result, the dollar will likely continue to be much stronger than its peers until the year ends and into Q1 2023.

However, many expect the Fed to start slashing rates next year to stabilise the economy and achieve a soft landing by rescuing the economy from a possible recession. Therefore, forex traders will be best served to bet on a stronger dollar instead of against it.

*This is not investment advice.

The US Dollar Index price chart.

Today, the US Dollar Index pulled back 74 pips (0.64%) to trade at a low of 113.37, falling from Monday’s closing price of 114.11.