Dollar headed for best week since November on US rates, economic outlook

Dollar performance struck an extraordinary note this week, with the currency on course to post its biggest weekly gain since November. This rally is driven by expectations of less rate cuts from the Federal Reserve and hopes for a better US economic outlook that keeps beating that of the rest of the world.

The dollar index surged to a two-year peak of 109.54 on Thursday, reaffirming its dominance over its rivals. Analysts say the jump is due to a strong economy in the U.S. and the Fed's cautious adjustment of its monetary policy. Elevated U.S. yields have also been key to increasing the dollar's attractiveness.

"The dollar will likely remain strong on a combination of U.S. exceptionalism and high yields," said Charu Chanana, chief investment strategist at Saxo. Also, uncertainty about policies that the Trump administration will implement makes it more appealing as a safe haven currency.

The rising Greenback has made an impression on other currencies. For example, the euro fell to $1.0225, a more than two-year low and on track for a 1.6% weekly drop. Most analysts believe that the dollar strength Eurozone effect is responsible for signs of potential trade tariffs and economic under-performance of this region.

Sterling, which also recorded losses, is down 1.6% this week. The yen, on the other hand, was slightly firmer but continued to be under pressure from the wide U.S.-Japan interest rate gap, which has kept the Japanese currency under pressure for years. Amid uncertainty, analysts on the currency market see the dollar's momentum as durable because of its position at the safe-haven assets podium. Even in the analysis of the currency markets where the dollar is king — the spread in rates between the U.S. and other economies is even wider.

In the coming weeks, we will continue to observe the influence of the USD on the Euro exchange rate and the currency behaviours of other countries and territories in guiding the direction of market trends. The dollar, as a top currency, will likely survive the effects of still-hobbled global markets through the recession struggles ahead.