Dollar Rally Hits a Wall With Record Run in Sight: Markets Wrap

The dollar lost traction, following a seemingly unstoppable rally that pushed the currency toward a record streak of weekly gains on bets the Federal Reserve will keep rates elevated. Stocks and bonds edged higher.

(Bloomberg) — The dollar lost traction, following a seemingly unstoppable rally that pushed the currency toward a record streak of weekly gains on bets the Federal Reserve will keep rates elevated. Stocks and bonds edged higher.

The Bloomberg Dollar Spot Index fell, while still on pace for its eighth straight up week — the longest such run since 2005. A respite in the greenback’s surge reduced the pressure on commodities. The S&P 500 saw a small gain after a three-day drop, with energy and tech outperforming. Apple Inc. rebounded from a two-day rout that erased $190 billion in value just a few days before the unveiling of the iPhone 15, new smartwatches and the latest AirPods.

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“The dollar has become quite overbought and overloved,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Therefore, it’s getting ripe for a pullback. Sentiment is reaching extreme levels for the greenback, and thus that doesn’t leave many more buyers to take it higher at least over the near-term. Short-term traders should be careful about long positions in the dollar.”

The greenback’s 14-day Relative Strength Index is currently above 70 — which is seen by many traders as one indication of an overbought market.

The recent dollar rally reflects the fissures that are opening in the global economy, with reports signaling that the US economy is accelerating even as growth cools in Europe and China.

“The dollar upside we have seen recently has surprised our expectations,” Laura Cooper, senior investment strategist at BlackRock, told Bloomberg Television. “We question the sustainability of that, largely as we look forward to the Fed, we think it is going to signal a hawkish pause.”

To Will Compernolle at FHN Financial, while markets are expecting rate cuts to begin in the second quarter of next year, an extended pause at the terminal rate that’s seemingly being suggested by current Fed communication would support dollar strength in the year ahead. 

“This, in turn, supports lower import prices that contributes to disinflationary pressure,” he noted.


Fed Bank of New York President John Williams said late Thursday US monetary policy is “in a good place,” but officials will need to parse through data to decide on how to proceed on interest rates. His Dallas counterpart Lorie Logan noted that skipping an interest-rate hike at the central bank’s upcoming policy meeting may be appropriate, while also signaling rates may have to rise further to get inflation back to 2%. 

The rising threat of interest rates staying higher for longer is likely to dent prospects of a soft landing for the US economy and drive a selloff in stocks over the next two months, according to Bank of America Corp. strategists led by Michael Hartnett.

The consensus probability of a hard landing is “around 20%,” but oil, dollar and bond yields remaining elevated, as well as tighter financial conditions, “remain the September-October risk,” they said.

Meantime, BofA rates strategists abandoned their recommendation to be tactically long 10-year Treasury notes, seeing risk that US economic resilience could drive the yield to 4.75%.

While they continue to expect 10-year Treasury yields — which reached a multiyear high last month — will end the year around 4%, that forecast is at risk, strategists led by Mark Cabana wrote in a note. 

Corporate Highlights

  • Kroger Co. rose after agreeing to sell 413 stores to C&S Wholesale Grocers in a divestiture designed to help win antitrust approval for its $24.6 billion merger with Albertsons Cos.
  • Snowflake Inc. advanced after D.A. Davidson started coverage on the infrastructure software company with a buy rating.
  • Smith & Wesson Brands Inc. jumped after the firearm manufacturer reported earnings that beat estimates.
  • First Solar Inc. rose as analysts raised their price targets following the solar tech company’s capital markets day. The firm set out its financial targets through 2026 and said its capacity was sold out through that period.
  • RH sank after the midpoint of the home-furnishing company’s revenue forecast missed the average analyst estimate.
  • Liquefied natural gas workers at key Chevron Corp. sites in Australia began partial strikes Friday after talks failed to reach an agreement in a dispute that’s roiled global gas markets.

Some of the main moves in markets:


  • The S&P 500 rose 0.3% as of 12:27 p.m. New York time
  • The Nasdaq 100 rose 0.5%
  • The Dow Jones Industrial Average rose 0.3%
  • The MSCI World index rose 0.2%


  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.1% to $1.0708
  • The British pound was little changed at $1.2468
  • The Japanese yen fell 0.3% to 147.71 per dollar


  • Bitcoin fell 0.6% to $25,833.75
  • Ether fell 0.5% to $1,629.82


  • The yield on 10-year Treasuries was little changed at 4.25%
  • Germany’s 10-year yield was little changed at 2.61%
  • Britain’s 10-year yield declined three basis points to 4.42%


  • West Texas Intermediate crude rose 1% to $87.73 a barrel
  • Gold futures were little changed

This story was produced with the assistance of Bloomberg Automation.

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