Is US Dollar overvalued?
How to interpret US Dollar Index?
The US dollar has reached a two-year high, driven by several key factors:
Economic Strength and Monetary Policy
The dollar's surge is primarily attributed to:
Strong economic indicators in the United States, leading to reduced expectations for interest rate cuts in 2025. The robust growth, driven by superior productivity, higher business investment, and fewer labor supply issues, supports a stronger dollar.
The Federal Reserve's cautious approach to monetary easing, with traders now anticipating fewer rate cuts than previously expected
Global Economic Factors
Several global factors are contributing to the dollar's strength:
The European Central Bank and Bank of England appearing more dovish in their December meetings.
Concerns about Britain's fiscal health, putting pressure on the pound.
Safe haven status: Heightened geopolitical risks and global economic uncertainties have led to increased demand for the dollar as a safe-haven currency.
Interest rate differentials: The gap between US 10-year…