Dollar surge continues on strong U.S. economy pre-election

The dollar shot up again, reaching a three-month high against a range of major currencies. Analysts think this trend would likely continue, fueled by the U.S. economy’s resilience against a struggling Eurozone and rising bets on a Republican victory in next week’s presidential election.

The economic data on jobs and PCE inflation this week isn’t expected to change the outlook. The DXY dollar index also peaked at 104.573.

Iran confirmed that its oil sector is stable despite recent Israeli attacks on military targets across its territory. That eased tensions as global markets get ready for a busy week with key economic data and major corporate earnings.

Among the anticipated data are results from the “Magnificent Seven” tech giants, U.S. and eurozone economic growth reports, and a monthly payroll report.

Election impact on dollar and equities

“Four factors are driving U.S. equities higher right now: better macro data, solid third-quarter earnings, rising expectations of a Republican sweep, and lower risk of escalation in the Middle East,” said Wolf von Rotberg, an equity strategist at Bank J. Safra Sarasin

The dollar’s impact stretches across sectors. Oil prices slid over 6%, while gold followed with a drop. Israeli airstrikes hit military targets in Iran, fulfilling Israel’s promise to respond to recent missile attacks, though the response was measured.

Israel’s shekel emerged as the top performer among 150 tracked currencies. On Wall Street, equity futures indicated a potential rebound after the S&P 500 recorded its first weekly decline in seven weeks.

Airlines benefited as lower oil prices suggested reduced fuel costs, while energy stocks faced declines. Boeing also fell in pre-market trading, following reports on its capital-raising plans.

For the U.S. bond market, facing its worst six-month selloff, this week is critical as it awaits the Treasury Department’s announcement on its debt sale plans. The 10-year Treasury yield rose by two basis points, while the dollar held steady. 

Market appetite and global equities

European stocks inched higher, led by luxury brands LVMH and Hermès, while major energy firms like Shell, TotalEnergies, and BP dragged the index down.

“We continue to see strong investor appetite for stocks—they seem excited about the global rates-easing cycle, while corporate earnings stay positive,” commented Marija Veitmane, a senior multi-asset strategist at State Street. Lower oil prices and stabilized Middle Eastern conflicts added to the bullish sentiment.

Among individual stocks in Europe, Sonova Holding AG shares climbed over 5% after Zurcher Kantonalbank announced Costco would resume selling Sonova’s Sennheiser hearing aids.

Royal Philips NV shares plummeted 17% following a downgrade in its sales outlook, and Porsche AG dropped after disappointing earnings results. In the U.K., the FTSE 100 fell as Prime Minister Keir Starmer vowed to implement fiscal austerity through tax hikes and extra borrowing.

Meanwhile, the yen saw its steepest drop in three months against the dollar after Japanese Prime Minister Shigeru Ishiba’s snap election gamble backfired. The dip gave the export-heavy Topix index a 1.8% boost.

U.S. leads global growth as investment booms

The U.S. economy is outpacing other developed economies, thanks to a wave of investments fueling productivity and wages. The International Monetary Fund (IMF) recently updated its growth projections, raising the outlook for both the U.S. and the global economy, with a stronger focus on the former.

The IMF projects U.S. GDP to expand by 2.5% in the fourth quarter compared to a year earlier, marking a half-percentage point increase from July. The U.S. economy grew 3.2% in 2023, setting it on track to outpace other Group of Seven nations.

Global GDP is now expected to grow by 3.3% this year, slightly higher than previous estimates. Advanced economies are projected to grow 1.9%, with the U.S. leading the pack. For 2025, the IMF forecasts 1.9% growth for the U.S., outpacing the projected 1.7% for advanced economies as a whole.

China’s economy, meanwhile, is expected to grow by 4.5% this year, a slight downgrade from prior estimates. Growth is expected to hit 4.7% by 2025, following a 5.4% expansion last year. The eurozone is projected to grow by 1.2% this year and 1.3% next year, after a sluggish 0.2% growth rate last year.

An influx of investment, particularly in nonresidential sectors, has kept U.S. inflation-adjusted wages climbing, driven by improved productivity. Real wages, adjusted for inflation, rise with productivity as companies reward workers as efficiency increases.

A surge of investor money has flowed into the U.S. in recent years, backed by substantial legislative packages for green energy and infrastructure. Strong domestic energy supplies have kept U.S. firms insulated from global energy shocks and shortages.

Economists say the U.S. investment boom has spurred productivity, defined as output per hour worked, which is key to long-term growth.

The IMF projects U.S. gross fixed capital formation to rise 4.5% from 2023 levels, tripling the average rate across advanced economies. From 2016 to 2025, the IMF estimates U.S. investment growth will average 3.3% annually, compared to 2.3% for advanced economies.