USD: The AI hangover and the exchange rates – Commerzbank

Strong US growth has a positive effect on the US Dollar (USD) via two channels: It allows the Fed to pursue a more restrictive monetary policy for longer, and to pay more attention to inflationary trends than it would if growth were weak. It makes investments in the USA particularly profitable and increases the value of the currency needed to make these investments: the USD, Commerzbank FX strategist Ulrich Leuchtmann notes.

US GDP figures may affect the Greenback

“I wonder whether it was only the previous US growth advantage that fueled the Greenback, or whether hopes of fantastic profits in the tech industry also resonated. There is always some story that justifies speculative exuberance. Now, it’s the ‘at the moment, that AI will take over people's mental (including creative) work in the near future’ stance.”

“Such things only appear to be a bubble in retrospect, not in the middle of it. If the USD grows because of the AI hopes, the USD is probably as fragile or stable at its current level as the AI boom is. But I’d remind the pessimists of the following: the dotcom bubble also went hand in hand with a strong US dollar.”

“So far, the USD has not suffered from the correction in tech stocks. Coincidentally, the US GDP figures for the second quarter of 2024 are being released today. After +1.4% in the first quarter, the median of analysts is now expecting +2.0%. If these expectations are disappointed, even those USD bulls who have liked the Greenback so far due to the actual growth advantage would be disappointed.”