US dollar higher once again

US dollar higher once again

I'm seeing more and more analysts highlighting the positive backdrop for the US dollar, something I wrote about a month ago.

The short version is that the US economy is closing the virus-gap more quickly than anywhere else and that means it will be the first place to hike rates, unless the Fed really wants to let the economy run hot.

Today's initial jobless claims report was another sign of resilience in an economy that's powered through dreadful covid numbers.

In large part, the latest shift is due to the Democratic election wins and control of Congress. Biden is pushing for a big stimulus spend and it increasingly looks like he'll get it.

Ultimately what drives FX is growth differentials (which lead to rate differentials). Meanwhile, German officials are talking about negative Q1 growth and EUR/USD is below 1.20. The euro also constrains the fiscal response there.

Looking beyond the dollar itself, how it performs is going to have knock-on effects on commodities on a day-by-day basis but ultimately a stronger US economy is good for consumption so the picture shouldn't really change.