On Friday (August 30th), the US dollar approached a one week high against major currencies and is expected to end its five week losing streak. The key factor driving this trend is the strong performance of economic data released by the United States, which has led to a convergence of market expectations for the Federal Reserve's aggressive interest rate cuts. At 15:32 Beijing time, the US dollar index (DXY) was at 101.40, up 0.7% this week and reaching a high of 101.58 since August 22, indicating a strong rebound of the US dollar after five weeks of decline.

At the same time, the EUR/USD fell to a two-week low, mainly due to the cooling of inflation data in Germany and Spain. This result reinforces market expectations that the European Central Bank may relax its monetary policy in the future. The Japanese yen, on the other hand, remained weak against the backdrop of the US dollar following the rise in US bond yields, hovering around 144.80 yen.

Fundamental analysis

The strong performance of the US dollar this week is mainly due to the unexpected performance of US economic data. Specifically, the revised gross domestic product (GDP) for the second quarter of the United States grew at an annualized rate of 3.0%, higher than the initial value of 2.8%. This data indicates that the US economy remains strong, especially in terms of consumption, demonstrating the resilience of the US economy. As Rodrigo Catril, Senior Foreign Exchange Strategist at the National Australia Bank (NAB), has stated, "US exceptionalism remains evident in the second quarter." This undoubtedly strengthens the position of the US dollar in the global market, further suppressing other major currencies.

Meanwhile, although the core consumer price index (CPI) in Tokyo rose by 2.4% in August, once again exceeding the 2% target set by the Bank of Japan, the CPI increase after excluding fresh food and fuel costs was only 1.6%. This means that inflation pressure in Japan is still limited, and the probability of the Bank of Japan maintaining a loose monetary policy is high, leading to a weak trend of the yen relative to the US dollar.

News and market reactions

The global market's attention to the US dollar is not only based on its economic data performance, but also on the policy expectations of the Federal Reserve. According to the FedWatch Tool from Zhishang Institute, the market currently tends to believe that the Federal Reserve will cut interest rates by 25 basis points on September 18th, with a probability of only 34% for a 50 basis point rate cut, lower than the previous day's 38%. This indicates that strong economic data has weakened market expectations for significant interest rate cuts, thereby supporting the strong performance of the US dollar.

In addition, the market is highly sensitive to inflation and economic data from other major economies. The cooling of inflation in Germany and Spain has strengthened market expectations that the European Central Bank may relax its policies in the future, thereby suppressing the trend of the euro against the US dollar. Later today, other major European economies will release more consumer inflation data, which is expected to further affect the trend of the euro.

Technical analysis

From a technical perspective, the rise of the US dollar index this week shows strong rebound momentum, but its future trend still needs to pay attention to the breakthrough of key technical levels. The US dollar index is currently around 101.40, and if it can effectively break through 101.58, it is expected to further rise and challenge the resistance level of the 102.00 line.

For the euro against the US dollar, it is currently flat at $1.10755. If the data further deteriorates and falls below the support level of $1.1050, it may trigger greater downside risks. On the contrary, if the euro can hold its current level and rebound after receiving positive signals from the European Central Bank, it may put some pressure on the US dollar.

Analyst opinions and market expectations

Market analysts hold different views on the future performance of the US dollar. Steven Barrow, the head of G-10 strategy at Standard Bank, mentioned in his report that although the US dollar is currently performing well, its resilience may be challenged in the long run. Barrow pointed out that the US fiscal policy, trade policy, and challenges to the independence of the Federal Reserve may all weaken the position of the US dollar in the future. Especially in the context of increasing global economic uncertainty, although the attractiveness of the US dollar as a safe haven asset has been temporarily maintained, if there are significant changes in US domestic policies, the dominant position of the US dollar may be impacted.

On the other hand, analysts from ANZ believe that the current strength of the US dollar is mainly due to the strong performance of the US economy and market expectations for adjustments in Federal Reserve policies. However, they also warned that if the US economic growth slows down or there is a significant shift in Federal Reserve policy in the future, the strong position of the US dollar may be difficult to sustain.

Overall, the strong performance of the US dollar this week is attributed to the unexpected performance of US economic data and the market's adjustment of expectations for the Federal Reserve's policies. However, the future trend of the US dollar still faces many uncertainties, including policy changes in other major economies, domestic fiscal and trade policies in the United States, and so on.

For professional market traders, it is important to closely monitor the technical performance of the US dollar at 101.58 in the short term, as well as the impact of inflation data from Europe and Japan on the euro and yen.