The Dollar Index is bucking up against 2-year highs in a run-up that has some strategists wondering if it could be ready to break out.
“The market is wrestling with whether this is the real breakout or not. We’ve had quite a day today ahead of the big [GDP] number tomorrow,” said Marc Chandler, chief market strategist at Bannockburn Global Foreign Exchange. “I think there will be a bit of ‘buy the rumor, sell the fact.’ They’re already looking past Q1 GDP. What’s really going to matter to the Fed is Q2 data.”
Chandler said the dollar started its latest leg higher last week after U.S. March retail sales jumped a surprise 1.6%. It has gained 1.2% since then. In addition to strong U.S. data, there was a round of weak European PMI manufacturing data, another factor pushing the dollar up against the euro. U.S. GDP data is reported at 8:30 a.m. Friday, and first quarter growth is expected at 2.4%.
Dollar/yen hit a new high for the year of 112.40 Thursday, but then fell back below 112. Chandler said the dollar also reached its high for the year against the euro. The euro was at $1.128 to the dollar late Thursday.
“If we go through $1.10 in the euro, people will be talking about $1.05 and parity coming back,” said Chandler. But Chandler said he believes the rally is getting ahead of itself, for now.
“I do think if this dollar rally stays in tact, what we need is divergence,” said Chandler, meaning the U.S. economy would continue to outperform.