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Yellen’s endorsement seals seemingly unstoppable dollar rally

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The dollar has been virtually unstoppable this year, and Janet Yellen just said it’s in the US’ interest for the currency to be driven by markets.

A Bloomberg gauge of the greenback is rising for a sixth day to head for another record high after the US Treasury Secretary said the currency’s strength is the “logical outcome” of different global monetary policy stances. Strategists say Yellen’s nod for a strong dollar will help power more gains in the world’s reserve currency.

A four-month advance in the dollar is showing few signs of slowing although some strategists warn that rising interest rates will soon start to hurt the US economy. The impact of the stronger greenback is being felt across the globe as developing nations struggle with a heavy dollar debt load and pricier imports.

“The green light is certainly there from authorities for a stronger dollar, and that’s a big tick for investors,” said Jessica Amir, strategist at Saxo Capital Markets in Sydney. “It is a comfort especially after the dollar has rallied so hard.”

Supercharged by hawkish Federal Reserve policy, US economic strength and haven demand, the dollar has notched multi-decade highs against the likes of the yen while pushing the Indian rupee, offshore yuan and pound to record lows.

Central banks from Japan to Chile have stepped in to try shield their currencies from the worst of the dollar’s onslaught, but the efforts have yielded limited results. Yellen, who said a “market determined value of the dollar is in America’s interest,” is giving investors little reason to bet against the greenback for now.

Some strategists are of the view the rally in the dollar has yet to run its course as global recession fears and geopolitical risks fuel demand for the ultimate haven.

It’s “hard to disagree with her view right now,” Rodrigo Catril, strategist at National Australia Bank Ltd., said of Yellen’s comments. “The dollar has plenty of valid arguments to re-test previous highs.”

© 2022 Bloomberg

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