Why the US Dollar Is So Mighty Again

The US dollar is soaring, and so is the US trade deficit. How can this be? Record capital inflows must be more than offsetting the record trade deficit.

That makes sense since interest rates have risen around the world so far this year with US rates well exceeding those in Europe and Japan, thus attracting global fixed income investors. Fed officials have been talking up US interest rates with their recent hawkish pronouncements, while the other major central bankers remain relatively dovish. The latest wave of the pandemic in China and the war in Ukraine have also convinced global investors that the US is a safe haven during these troubled times. Here is what the data show: