The U.S. dollar has reached a one-year high amid ongoing speculation about the "Trump trade." According to Cedric Chehab, Chief Economist at Fitch Solutions' research arm BMI, the strengthening dollar is a double-edged sword for President-elect Trump. While the dollar's rise reflects a robust U.S. economy, it also elevates inflation expectations and could diminish the Federal Reserve's dovish stance.
Since early October, the U.S. Dollar Index has surged by 6%, making American exports more expensive by the same margin. Contrary to reducing the trade deficit, this may have an opposite effect. However, trade deficit reduction could occur if major trading partners significantly increase their purchases of U.S. capital equipment, goods, energy, and services, thereby boosting American exports and the dollar.
From a technical standpoint, if the U.S. Dollar Index breaks the resistance level of 106, it could climb towards 108. However, Chehab predicts that surpassing this level will be challenging, and the index is expected to fluctuate within the range of 100 to 108 in the coming months.
Recent U.S. media projections suggest that the Republican Party will retain control of the House of Representatives, strengthening Trump's policy initiatives and fueling the "Trump trade" momentum. The U.S. Dollar Index recently peaked at 106.781, with the latest report showing it at 106.701.
