[TOP STORY] What’s driving the dollar stronger across all currencies?

SIMON BROWN: I’m chatting now with Matete Thulare, head of ethics execution at RMB. Matete, I appreciate your early morning. We’ve had this chat before around the US dollar index; DXY is its code. It has come off a little bit in the last few days, but is pretty much still trading at 20-year highs, back where it was in June 2002.

My question is, what’s driving it? Is it war in Europe or the energy crisis in Europe, or global recession fears. or just all of their above? Good old-fashioned folks are spooked. They want to put their money where they think it’s safest.

MATETE THULARE: Good morning, Simon. If you think about it, the dollar currency has started the week on a really positive note. We did approach a five-week peak, and obviously we are trying to gain a foothold in terms of positioning as well in terms of the dollar growth. I think that’s really been promoted by the hawkish stance by the Federal Reserve ahead of Jackson Hole tomorrow evening.

I think the dollar is showing confidence and it is supported by the high probability of continued aggressive tightening of monetary policy by the Federal Reserve Bank and Jerome Powell. If you recall, at the end of last week there were some Fed members that announced their readiness to further raise rates amid concerns about the ever-growing ‘Is’ – the inflation and interest rates that we keep speaking about.

However, the problem is obviously the strengthening of the bearish sentiment of the US currency for three weeks now – we’ve been seeing markets reducing the positions of their growth in dollars, but at the same time a lot of large hedge funds are increasing their dollar sales by like 6%.

However, if you think about off-scale inflation in the US, it is phenomenal [with] a large overbought greenback; and obviously the dollar – there’s also not a decline in the dollar index.

So I suppose the demand for the dollar will remain, and I suppose ahead of the meeting at Jackson Hole tomorrow evening markets are really going to pay attention to this protective dollar.

If you’ve just seen even the euro/dollar, we’ve now broken below parity. So if anything, the dollar has grown significantly, which obviously demonstrates the dollar against the basket of currencies across a number of countries.

At the end of last week this was at a really high base: it had grown by more than 2% in terms of appreciation across a basket of currencies. Also, the current situation in Europe is actually not even helping because, if you think about it, the sentiment among a lot of euro investors is that we’ve got the geopolitical tension, we’ve also got a deterioration in the economic situation in Europe, and there is now a bearish sentiment towards the euro currency, which has actually peaked over the past two years. Also now this is obviously a case of recession in the eurozone, and the geopolitical tension that has now [prevailed] for more than six months and it is playing itself out, and it looks like it could be going on further. And it just looks like global growth is not going to be sustainable. Obviously the numbers will have to be revised at some point or another, and it’s not going to look as great as we’d expected.

And that just means a rush to safe haven, which means a rush to the dollar.

SIMON BROWN: That’s it. If there’s fear out there, everything heads to the dollar, checking that euro/USD: 0.9990 is the current bid on that. And of course the rand is holding a bit, but still weak. Matete Thulare, head of FX execution at RMB, we’ll leave it there.

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