The Dollar Looks Poised to Wreak Havoc

There’s been a lot of talk lately about how the global currency market has become stuck in a tight range, with volatility collapsing and no clear trends emerging. Judging by the performance of the dollar, this is no time to be complacent.

The Bloomberg Dollar Spot Index rallied on Tuesday despite a disappointing report from the Federal Reserve on March industrial production and capacity utilization. And that’s the point: the dollar has shown remarkable resilience in recent weeks, holding its value even as incoming data has fallen short of expectations by the greatest degree since mid-2017, as measured by Citigroup Inc.’s economic surprise indexes. That marks a break from the recent past, when the dollar tended to move in the same direction as the surprise index. The other thing to note is that the market is more bearish on the dollar than any time in the past year, based on the options market. Hedge funds and other large speculators are paying more to protect against a decline in the greenback than they are for calls versus the euro and its other major peers, according to Bloomberg News’s Todd White. What that means is any bit of good economic news is likely to spur a reversal of those bets, adding to the upward pressure on the dollar.