The U.S. dollar could build on its strong gains this year, even with the Federal Reserve not raising rates, because the United States' near-term economic prospects look far less grim than those of other countries.
The dollar index, which tracks the greenback's performance against a basket of six currencies, is up more than 1 percent in 2019. Last week, it reached its highest level since Feb. 15. Against the euro, the dollar is up 2 percent this year and notched its biggest weekly gain in six months on Friday.
The dollar's rise defies the consensus from earlier in the year that the U.S. currency would go down as the Federal Reserve signaled fewer rate hikes. New tame inflation data on Tuesday supported the Fed's new tack.
"The dollar has stayed bid on the back of safe-haven demand," said Peter Ng, senior FX trader at Silicon Valley Bank. "The global slowdown is affecting everyone and at the current moment, it doesn't seem like there are any good replacements for the dollar."
Investors across the globe and asset classes are fretting over the possibility of a slowdown in economic growth amid weakening data.
Chinese exports dropped 20.7 percent in February from the year-earlier period, missing expectations.
In the U.S., jobs creation came to an almost screeching halt in February as only 20,000 jobs were added. Economists polled by Refinitv expected the U.S. economy to have added 180,000 jobs last month. Some experts, however, attributed some of the hiring weakness to factors like weather and lingering effects from the government shutdown.
In Europe, the European Central Bank slashed its euro zone growth forecast for 2019 to 1.1 percent from 1.7 percent. ECB President Mario Draghi said Thursday there is a "sizable moderation in economic expansion that will extend into the current year."
Despite the broad slowdown in economic data, U.S. growth remains solid compared with other countries. The U.S. economy grew by 2.6 percent in the fourth quarter. Meanwhile, the Institute for Supply Management said Tuesday its nonmanufacturing activity index rose 3 points to 59.7 in February.
The relative economic strength in the U.S. versus the rest of the world also has traders chasing the dollar because of comparatively higher interest rates. The 2-year Treasury note yield traded at 2.47 percent on Monday. Germany's 2-year sovereign paper, meanwhile, yielded negative 0.54 percent. Japan's 2-year note yield was also in negative territory. In other words, it is currently more profitable to own U.S. dollars versus most major currencies.
"If you compare the rates across the board, the U.S. still far outperforms," Silicon Valley Bank's Ng said.
Fed Chair Jerome Powell told CBS' "60 Minutes" he thinks the U.S. economy is still strong, but noted there is a chance that overseas weakness could start hitting the U.S.
Still, "financial conditions remain supportive, and this may support growth going forward," Mark Schofield, global head of macro product at Citi, said in a note. "The interplay between markets and the real economy is delicate and unstable at the moment. The Fed will be aware of this."
There are risks to having a stronger dollar, especially for U.S. multinationals. A stronger dollar makes it harder for consumers and companies overseas to buy U.S. products by making them more expensive.
President Donald Trump said March 2 he was not pleased with the dollar's run-up this year, stating: "I want a dollar that's great for our country but not a dollar that's prohibitive for us to be doing business with other countries."
The U.S. trade deficit surged to a 10-year high in December, reaching $59.8 billion. The widening was driven by a 2.1 percent increase in imports and a 1.9 percent decline in exports.
"The trade trend defies President Trump's pledge to reduce America's reliance on imported goods, and he angrily shook his rhetorical fist at Fed Chairman Powell, blaming him for the strong US dollar. The President's economic dot connections are correct," Jack Ablin, founding partner of Cresset Wealth, said in a note to clients. "Dollar strength encourages imports while inhibiting exports by making US dollar-based goods and services less competitive. ... This means that unless the dollar reverses course and weakens quickly, America's trade deficit will likely worsen."