US dollar soared for the second day in a row as investors have started showing confidence in the US economy because the data suggests a robust improvement in the past two months. US housing, manufacturing, and consumer price indices rose to multi months high in August while Wall Street has also been hitting fresh records since the beginning of this month.
Consequently, investors have started lowering their short bets on the greenback. The USD index jumped back to 93 levels on Thursday after hitting the 91.7 mark for the first time in the last twenty-seven months.
The dollar gains are also supported by the trader’s concerns over the robust rally in the common currency. Investors believe the European Central Bank could take some actions to halt the euro upside momentum against the US dollar.
Despite the recent gains, some market analysts are still bearish over the USD future fundamentals. This is because of the Federal Reserve’s monetary policies.
“It’s probably just a pause. Everyone’s pretty bearish dollars for good reason,” said BNZ senior markets strategist Jason Wong. The analyst is pointing to the Federal Reserve’s interest rate policy outlook that will likely keep rates very low for a long time.
Commerzbank analyst Thu Lan Nguyen believes that economic performance and interest rate will only be the exchange rate drivers in the coming months.
“The US dollar was able to benefit from significantly improved ISM data yesterday which suggests a continued high-speed recovery, thus increasing the likelihood that the US might be able to overcome the crisis comparatively better after all,” Thu Lan Nguyen said.
The common currency is currently trading around $1.18 level against the US dollar. The euro has hit the $1.20 mark on Tuesday. The US dollar also gained strength against the British Pound and Australian dollar. The Aussie government confirmed that the country is in recession due to the economic fallout of the pandemic.