Dollar Rebound Set to Extend Amid Fed Speakers, China Tensions

Three straight days of gains are giving hope to embattled dollar bulls who are looking to a slew of Federal Reserve speakers and rising US-China tensions to extend a nascent rebound.

The Bloomberg Dollar Spot Index rose 0.2% on Monday, putting the greenback on track for a gain of nearly 2% over the three sessions through Monday. Most of the greenback’s advance came Friday after a red-hot jobs report fueled bets of more Fed rate hikes to combat surging inflation.

“There are many Fed speakers this week and they are likely to highlight the ‘higher for longer’ theme,” Win Thin, global head of currency strategy at Brown Brothers Harriman & Co., wrote in a note. “Taken in conjunction with dovish hikes last week from the European Central Bank and Bank of England, we believe the dollar rebound will continue this week.”

The dollar’s U-turn comes after it slumped to the lowest since April on expectations the Fed could soon rein in the pace of tightening. Bullish bets on the dollar gathered momentum Friday after the jobless rate in the US hit a 53-year low, spurring expectations that policy makers would have little choice but to keep interest-rates elevated to combat inflation.

Deepening US-China tensions fueled by an alleged Chinese spy balloon and yen weakness amid speculation on the appointment of Masayoshi Amamiya as a next Bank of Japan governor are adding to tailwinds for the dollar. A bevy of Fed members are scheduled to speak this week, with Chair Jerome Powell due to talk in Washington on Wednesday.

The greenback has further to gain as bearish currency positions look “stretched,” said Fiona Lim, a foreign-exchange strategist at Malayan Banking Berhard in Singapore. The “potential for further US-China conflict adds to reasons for the dollar to extend its bullish rebound,” she said.