Why the dollar isn’t a one-way bet on strength

The dollar surged in the wake of U.S. missile strikes on Syria on Friday, but analysts were divided on whether the greenback would keep flexing its muscles.

In a move that took many by surprise, the Trump administration used Tomahawk cruise missiles to attack a Syrian government airfield late Thursday U.S. time. It has also continued to fly sorties over Syrian airspace.

Additionally, the U.S. moved an aircraft carrier group closer to North Korea over the weekend.

That sent additional flows into the U.S. dollar, which is often considered a safe haven. The dollar index, which measures the greenback against a basket of currencies, rose to as high as 101.34 in early Asia trade on Monday from around 100.50 before the U.S. struck Syria.

Todd Elmer, a currency strategist at Citi, told on Monday that he expected the strength of the dollar and other safe-haven currencies, such as the yen, would persist amid the escalation in geopolitical tensions.Elmer also noted that the greenback's muscle flexing wasn't just about geopolitics, with the U.S. Federal Reserve also appearing to lean toward hawkish.

In Fed minutes released last week, the U.S. central bank indicated it would begin to unwind the $4.5 trillion in bonds it's holding on its balance sheet and that it was likely on a faster trajectory for interest rate hikes.

Joseph Capurso, a currency strategist at Commonwealth Bank of Australia, told on Monday that the dollar was buffeted by two trends: weakness against currencies of countries with current account surpluses, such as Japan's yen and the euro, and strength against commodity currencies.

David Riedel, president of Riedel Research Group, told on Monday that fading expectations for U.S. President Donald Trump's domestic policies would likely take the sting out of dollar strength."I think Trump's failure to get health care passed really puts his tax reform efforts in some sort of question. It really questions his ability to do any of his platform that he was talking about on the campaign trail," Riedel said.

Source: Bloomberg

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