What else can the US dollar rely on to continue rising?

A new round of global currency wars led by the US dollar is in full swing. With the expectation of a Fed rate cut gradually cooling down, the US dollar index has been fluctuating upwards this year, accumulating a 3.97% increase to above 106.

Can the US dollar continue to rise next?

On April 19, HSBC released a research report stating that for the US dollar to continue its upward trend, the following factors may provide support: the level of US bond yields, central banks outside the Federal Reserve turning dovish, and the surge in demand for safe-haven assets.

In the report, HSBC used the phenomenon of hitting a "wall" in a marathon or long-distance race to describe the future trend of the US dollar: "Hitting a wall" generally refers to the fatigue of the limbs, lack of determination, and difficulty in persisting in the later stages of a long-distance race.

This means that HSBC believes that the US dollar's upward momentum may slow down in the near future. However, the report also points out that compared to other major currencies, the US dollar will still maintain its leading position and is expected to rise to 107 in the short term.

The US dollar's rise will be "difficult to continue"

The report points out that with inflation data unexpectedly rising for three consecutive times, the Fed's rhetoric has shifted to "maintaining high levels in the long term," and the expectation of a rate cut has significantly retreated.

Currently, the market has fully priced in one rate cut and believes that the likelihood of two rate cuts this year is 50:50, with pricing for the year-end interest rate level shifting from 3.90% at the beginning of the year to 4.90%.

This indicates that the driving force behind the Fed's push for the US dollar to rise may be running out. The report suggests:

In this situation, the possibility of "the Fed not cutting rates this year" and the possibility of "not landing" do not seem impossible.

Key Support: US Bond Yields

To continue the US dollar's rise, the report points out that the main support factor is the persistently high US bond yields, which are expected to keep the US dollar strong:

We still believe that the US dollar has reasons to temporarily maintain its leading position. The main reason is the persistently high US bond yields, although they may be difficult to rise.

US bond yields may also fuel risk aversion, thereby supporting the US dollar, and geopolitical tensions may further support the US dollar.

In addition, as economic data continues to exceed expectations that have already been revised upwards, the theme of the "American exceptionalism" is unlikely to suddenly collapse.

Therefore, the US dollar's upward trend may continue, but it may feel increasingly challenging.

As of the time of writing, the 10-year US Treasury yield rose by 0.72% intraday to 4.647%, with a cumulative increase of over 70 basis points since the beginning of the year

Other Support: Risk Assets Decline + Geopolitical Risks

The report also adds that the potential decline in risk assets may boost the US dollar as a safe-haven asset, but this assessment still needs to be verified:

In 2024, the opposite trend between the US dollar and the stock market is not so significant, as the foreign exchange market has been trying to determine whether good US data is positive or negative for the US dollar, weakening the inverse relationship between the US dollar and stocks.

The report also points out that if geopolitical risks further escalate, this will further enhance the safe-haven role of the US dollar. In the coming weeks, it is expected that the US Dollar Index will continue to rise and challenge 107.

In conclusion, whether the US dollar still proves to be resilient will depend on US data, geopolitical developments, and the performance of other central banks