US Dollar: Stronger profile as policy supports flows – Societe Generale

Societe Generale's Kit Juckes believes recent US policy proposals, such as diesel exports and higher yields, are strengthening the US Dollar outlook. He explains that policymakers' efforts to undermine the Dollar have failed since the Federal Reserve raised interest rates. Capital inflows driven by higher US yields should continue supporting the Dollar, particularly as Europe faces potential growth risks amid the global energy crisis.

In the foreign exchange markets, only the Dollar emerges as the clear beneficiary of such policies. While the US may not experience direct economic benefits, European currencies, including the euro, are likely to suffer. The US Dollar's upward trend is evident as it breaks free from the tight ranges it occupied throughout the summer.

Market participants will closely monitor today's ISM data and listen to the six current voting Federal Open Market Committee (FOMC) members scheduled to speak. However, if Friday brings a surprisingly weak Non-Farm Payroll (NFP) report, it would present an attractive entry point for long-dollar positions. Currently, the US is adeptly addressing the requirement for greater capital inflows in a world increasingly concerned about US policies by offering higher yields.

This strategy will keep money flowing into the country and sustain the Dollar's strength until growth begins to falter. In the context of a global energy crisis, it is challenging to envision the US experiencing significant growth slowdown before Europe does.