The recent bullish breakout of the dollar was driven by a stronger-than-expected US CPI report for March, raising doubts about inflation slowing towards the Fed's target. This has led to a delay in rate cut expectations from the Fed, with the first cut now anticipated in July or September. The ECB also announced plans to start a rate-cutting cycle in June, creating a potential monetary policy divergence between the ECB and the Fed, favouring further dollar strength.

In this video, Lee Hardman, Currency Analyst at MUFG also explores how geopolitical risks, such as the escalating conflict between Israel and Iran, could increase safe-haven demand for the dollar. However, factors like potential Japanese intervention to support the yen and signs of global growth picking up outside the US could restrain further dollar upside.

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Key points

  • 00:27 - Why has the USD been the best performing G10 currency so far this year?
  • 01:44 - What factors could help to dampen further USD upside?

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