View of the Week-US exceptionalism sees king dollar reign supreme

The dollar is on course for an eight consecutive week of gains, marking the longest winning streak since October 2014, and until something stops the global economic gloom loop, it seems only a softening in U.S. data could derail the U.S. currency's rally.

The U.S. exceptionalism narrative received an added boost this week, with U.S. data continuing to come in hot, as highlighted by the strong ISM and jobless claims figures, raising the probability of a soft landing.

On the other hand, euro zone growth has been stagnating at best, while China’s drip feeding of stimulus measures has done little to quell concerns over a slowing global economy.

With the dollar used as a hedge against weaker global growth, safe-haven flows have kept the greenback on the front-foot. EUR/USD has fallen to a fresh 3-month low, following a decisive break below its 200-DMA, while USD/CNH is within touching distance of its 2022 peak.

Another factor that leans in favour of the dollar, is its current yield advantage as Treasury yields trades near its cycle highs. At the same, growing recessionary risks in the euro zone look to force an ECB pause at next week’s policy decision.

Looking ahead, there are pockets of risk events for dollar bulls to watch, most notably the latest CPI report. Headline CPI expected to tick up from 3.2% to 3.6% with the core figure seen falling to 4.3% from 4.7%.

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