The dollar has enjoyed a remarkable turnaround over the past two months, erasing all of its early losses in 2023 after a series of strong economic data indicating that the United States will not suffer from a long-expected recession.
The US dollar index, which measures the US currency against a basket of six currencies, has risen by 5% since last July 13, and nearly 1% during the last five trading sessions alone.
On Thursday, the gauge reached its highest level in six months, after data released the previous day showed that services sector activity expanded more than analysts expected last August.
These figures were the latest in a long string of strong data over the past two months, with inflation slowing to 3.2% in July and unemployment stabilizing at less than 4% in August.
The string of economic gains sets the dollar apart from its rivals - as the ongoing crises in China since the lockdown following the Corona pandemic make the dollar a more attractive investment than the yuan, according to IG analyst Axel Rudolf.
Signs of weakness in China's services sector pushed the yuan to its lowest levels in 16 years, and helped push the US currency to its highest levels in six months due to high-quality flows, Rudolph said in a research note this week.
The dollar may also have benefited from speculation that the Federal Reserve is not yet done with its battle against rising prices.
About 40% of traders expect the central bank to raise interest rates again before the end of 2023, according to CME Group's Fedwatch tool, boosting the dollar's appeal to foreign investors looking for better returns.
