Dollar Index Hits New High of 101.8; CITIC Securities: Driven by Liquidity Divergence, Unlikely to Sustain Rally This Year
0xBroomberg
The dollar index rose to 101.8 on June 24, a high not seen since May last year. CITIC Securities argues the driver is a US-Europe rate-expectation gap — not political narratives — and expects the index to range between 98 and 102 for the rest of the year.
Why did the dollar surge so suddenly?
The dollar index gained as much as 2.2% from June 16. Gold fell below $4,000/oz, Brent crude dropped roughly 8%, and EUR/USD slid 2.1% over the same span.
CITIC Securities says the driver is not the popular "re-dollarization" political narrative but a divergence in US-Europe liquidity expectations. In plain terms = the Fed may hike, the ECB didn't follow, the rate gap widened, and capital flowed to the dollar.
The 2-year US-Germany nominal spread widened 12 bps to about 1.6%; the 5-year real spread widened roughly 7 bps, pressuring the euro.
How much did Bessent's "strong dollar" talk actually matter?
Treasury Secretary Bessent said on June 24 he was happy to see the dollar firm, noting Iran would invoice oil in dollars and Venezuela would return to the dollar system.
This means → the "de-dollarization" narrative hit a wall. But CITIC Securities points out the dollar was already rising before Bessent spoke — politics alone cannot explain the full move.
This reflects a market tendency to package rate-driven moves as political stories, even when the timeline doesn't support that attribution.
What is the rates market saying?
The 2-year Treasury yield — the maturity most sensitive to rate-hike bets — rose about 10 bps to 4.15% since June 16, tracking the dollar higher.
The 10-year yield, however, fell roughly 4 bps to 4.40%. In plain terms = the short end is pricing hikes, but the long end isn't buying it — inflation fears have not escalated further.
This means → the dollar's strength looks more like a short-rate impulse than a broader bet on sustained US economic outperformance.
Are dollar longs getting crowded?
CFTC data as of June 16 show hedge funds, asset managers, and other speculators holding $29.4 billion in net long dollar positions.
JPMorgan's co-head of global FX strategy, Meera Chandan, says the Fed has "activated" the dollar-bullish case. Hedge fund Man Group sees 5% more upside by year-end; TD Securities forecasts about 2% gains in Q3.
Bank of America cut its year-end EUR/USD forecast from 1.20 to 1.15 and expects the Fed to hike three times this year. Barclays, however, warns: hike expectations are already priced in, and the rally may not be linear.
What is CITIC Securities' base case going forward?
CITIC Securities is skeptical of three hikes this year. It argues headline inflation likely peaked in May and the risk of a second inflation wave is low.
Futures non-commercial net positioning shows the long-dollar trade is already somewhat crowded. This means → if rate expectations disappoint, the pullback pressure is real.
Base case: the dollar index likely trades in a 98–102 range this year. The next US inflation print could be the catalyst that forces the market to rethink.
What signal is the options market sending?
The premium for betting on dollar appreciation over depreciation over the next 12 months is near its highest in over a year, approaching the five-year average.
But it remains below the peak reached during the last "US exceptionalism" trade. Put simply = bullish sentiment is elevated but not yet extreme.
The key validation point: whether the Fed can deliver the hikes the market has already priced in — delivery keeps the dollar firm; disappointment triggers a pullback.
Content is for reference only, not financial advice.