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The Dollar's Resurgence and the Role of Energy Prices

Following a subdued start to the year, the US dollar has regained momentum. This renewed strength is largely attributed to rising energy costs, which are influencing the currency through several significant pathways.

Firstly, much like in 2022, elevated energy prices are directly affecting countries' external balances. Investors may remember that in 2022, soaring energy import costs pushed the eurozone's monthly trade balance into a deficit approaching €50 billion by late summer. In contrast, the United States, benefiting from energy self-sufficiency, is seeing positive effects, while nations in Europe and Asia that rely heavily on fossil fuel imports are facing challenges.

Secondly, shifts in expectations regarding the Federal Reserve's policy cycle are also playing a crucial role in supporting the dollar.