The US dollar has made a remarkable comeback, surging higher after shaking off recent weakness. This resurgence is primarily driven by stronger-than-expected economic data and increased safe-haven demand amid ongoing geopolitical tensions.
Recent US labor market figures have exceeded expectations, prompting a reassessment of the Federal Reserve's policy trajectory. The robust labor market, characterized by strong job growth and rising wages, has challenged perceptions of a weakening US economy, reducing expectations for aggressive Fed rate cuts.
Inflationary pressures are also a concern, with upcoming US Consumer Price Index (CPI) data expected to be crucial in determining the inflation trajectory and its potential impact on Fed policy. If inflation meets or exceeds expectations of 2.5% headline and 3.8% core, further dollar strength could be supported.
Technically, the dollar has broken out of its recent downtrend, with the US Dollar Index (DXY) clearing key resistance levels. Traders are closely monitoring for a sustained break above the 103 level.
Upcoming data releases will be pivotal: the US CPI inflation data on Thursday, the Reserve Bank of New Zealand's rate decision, expected to cut rates by 50 basis points, and Canadian labor market data on Friday, which could impact the Canadian dollar.