United States Dollar Index: Recoupling with rates – Societe Generale

Societe Generale’s Kit Juckes notes that the Dollar Index is closely tracking EUR/USD and highlights how President Trump’s policies weakened the Dollar relative to what economic and monetary fundamentals implied. He argues the Dollar is now recoupling with relative interest rates and is testing 12‑month highs after stubborn inflation and resilient growth led the FOMC to deliver a less dovish message.

Dollar tracks rates and FOMC stance

"Whether I look at the Dollar Index, or its near-mirror, EUR/USD, it’s very easy to see the influence that President Trump had on the dollar last year, weakening relative to where the economy and monetary policy settings might have been expected to take the dollar."

"It’s equally easy to see that gradually, the dollar is recoupling with relative rates."

"This could change again, of course, but on a morning after stubborn inflation and resilient growth persuaded the FOMC, and its new Chairman, to deliver a significantly less dovish message than many expected, the dollar is testing 12-month highs."

"Our economists’ central case is that Fed rates will be on hold throughout this year, but high (and sticky) inflation, and a booming equity market, will..."