Bank of America Explains Why the US Dollar Is Rising

The DXY index, which measures the performance of the US dollar shows it hovering around the 106.28 mark. The USD rose by 0.12 points during the opening bell surging 0.12% on Monday. The US dollar is the top-performing currency in the market this week and outperformed all leading currencies like the Pound Sterling, Chinese Yuan, Indian Rupee, and Japanese Yen.

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Apart from the US dollar, gold and copper prices are also skyrocketing in the charts this year. The gold’s XAU/USD index is aiming to reach $2,500 while copper prices could soon hit a new milestone of $10,000. So why are these assets dramatically surging in price in 2024? In this article, we will explain why the US dollar is rising this year.

Currency: Why is the US Dollar Rising? Bank of America Analyst Explains

The Federal Reserve’s stance of not cutting interest rates made the US dollar surge in price early this year. However, a new development made the currency spike further and that’s the ongoing turmoil in the Middle East between Iran, Israel, and Palestine. The conflict in the region threatens the global equity markets with fears of an upcoming crash.

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Therefore, institutional investors are looking at quality assets to park their investments in safe havens as the storm grows. The institutional funds are exiting the equity markets and taking an entry position in the US dollar, gold, and copper. The commodity market is gaining from the conflict in the Middle East and not the stock market, which is at the receiving end.

“The dollar is strengthening for a combination of reasons,” said Claudio Irigoyen, Head of Global Economics at Bank of America to CNN. “It’s not only the Fed saying that it is not going to cut rates soon, which has caused markets to reprice. It’s also that the US economy is doing better than the rest of the main regional blocs, including the Eurozone. Most of the surprises in growth keep coming from the US,” he said.

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The analyst stressed that the geopolitical conflict is helping the US dollar to scale up in price. “It is also because every time you have a shock on the geopolitical side, there is this flight to quality components, which helps the dollar. And if you keep having incidents in the Middle East, those shocks will cause a spike in energy prices and those shocks have a proportionally bigger effect on Europe and Japan, but not as much on the US, which is more energy independent,” he summed it up.