The ICE U.S. Dollar Index rose 0.8%, reaching a new daily high of 105.65, approaching the top of 105.788 recorded when the Federal Reserve announced a 75 basis point interest rate hike on June 15.

The ICE U.S. dollar index rose 0.8%, reaching a refresh day high of 105.65, approaching the top of 105.788 recorded when the Federal Reserve announced a 275 basis point interest rate hike on June 15.

html On July 1, the euro fell 0.5% against the U.S. dollar on the day, to 1.0431; the pound fell below the 1.20 mark against the U.S. dollar, setting a new low since June 15, with an intraday drop of nearly 1.5%.

An index measuring the dollar against a basket of 16 currencies rose 8.7% in the first half of the year. That gave it its best first-half performance since 2010, when the dollar gained 8.8% in the first half.

Investors seeking refuge in volatile financial markets have been piling into the U.S. dollar as a safe-haven asset, sending the dollar soaring to multi-decade highs; the U.S. Federal Reserve's aggressive interest rate hikes have also boosted the greenback.

In today's financial environment, Wall Street tends to favor central banks currencies that act quickly because they believe these central banks can either control inflation or step in to support financial markets when the financial system gets into trouble.

In the first half of the year, only a few currencies appreciated against the US dollar, while almost all major currencies in the world depreciated against the US dollar.

What does a strong dollar mean?

Rick Rieder, head of fixed income at BlackRock, believes that the dollar’s ​​daily unpredictable fluctuations make it difficult for investors to make investment decisions:

As a reflection of tightening monetary policy and lower global risk tolerance, the dollar’s Continued strength makes you want to be more cautious when taking risks.

For multinational companies, a strong dollar means that these companies have to review exchange rate risks . According to FactSet data, the total foreign exchange impact of S&P 500 index companies in the first quarter increased by $7.42 billion compared with the same period last year.

The US dollar serves as the world's reserve currency and is used to trade goods in the global economy. A strong dollar will also affect global financial markets and economies.

When the dollar appreciates sharply, the currencies of the United States' major trading partners are relatively weak in comparison, which can also stimulate inflation in other countries because other countries need more currency to buy foreign goods or import energy.

At home, a stronger dollar will make U.S. products more expensive in overseas markets, hurting exports. U.S. companies such as Microsoft Corp. have recently lowered their profit forecasts, citing the rise in the U.S. dollar as one of the reasons. Markets worry that in the medium term, a stronger dollar will actually slow down the U.S. economy, making the Fed's job harder. Some market analysts believe that, in fact, the impact of the appreciation of the US dollar on the market is the same as the impact of the Federal Reserve raising interest rates .

Where will the US dollar go next?

Some analysts believe that the Federal Reserve's so-called real broad U.S. dollar index may reach a new high this century by the end of July.

Among the major currencies, the US dollar has appreciated most significantly against the yen, partly due to Japan's continued loose monetary policy . The Bank of Japan has refused to tighten monetary policy, out of step with central banks in other advanced economies. The dollar gained nearly 18% against the yen in the first half of the year, its biggest gain of the year.

The dollar continues to rise, coupled with inflation, geopolitical conflicts, supply chain crisis, and other factors, the market is increasingly worried about an imminent recession.

Jan Hatzius, chief economist at Goldman Sachs , said:

We are increasingly concerned that if energy prices rise further, the Fed will have to respond forcefully to high headline inflation and consumer inflation expectations, even if economic activity slows sharply.

But while the U.S. economic outlook remains uncertain, investors see it as more resilient than other economies, including Britain and Europe. There is widespread belief that high inflation in Europe coupled with low growth prospects could lead to so-called stagflation.

In the past few years, investors would choose the euro as a safe-haven asset once they encountered market turmoil, but the current geopolitical conflicts in Europe have caused investors to abandon the euro. At present, market analysts believe that the euro, which is losing ground, is still far from hitting a historical low. In the first half of this year, the euro has fallen by more than 7.5% against the U.S. dollar.

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