Currencies: There was no stopping the rising U.S. dollar in 3rd quarter

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Currency traders apparently aren’t paying much attention to the White House.

While President Donald Trump has made clear his frustration with the dollar’s strength relative to other major currencies — to the point that strategists war-gamed the potential impact of unilateral U.S. intervention in the foreign exchange markets — the greenback spent the third quarter in rally mode.

Read: Why the U.S. dollar is cementing its role as a global safe haven

On Tuesday, the ICE U.S. Dollar Index DXY, +0.27%, a measure of the currency against a basket of six major rivals, was up 0.3% at 99.378 after hitting its highest level since April 2017. That caps a third quarter that’s seen the index rise 3.4%, its strongest quarterly rise since a 5% rally in the second quarter of 2018.

That could be a factor as earnings season gets under way. A strong dollar can be a headwind — and a handy excuse for disappointing performance — for exporters, including large-cap multinationals. So it will be interesting to see how much the dollar’s strength factors into management discussions of third-quarter performance. Compared to a year ago, the DXY is up around 4.4%, while the euro EURUSD, -0.3839%  is nursing a 6.1% year-over-year decline. The dollar has lost ground versus the Japanese yen USDJPY, +0.17%, however, down 6.1% year-over year.

When it comes to the dollar index, however, it’s the euro that sets the tone. The euro is weighted at nearly 60% of the DXY. The shared currency, meanwhile, is trading at its lowest versus the dollar since May 2017 after slipping below the $1.10 level earlier this month.

While the Federal Reserve remains in easing mode, the European Central Bank has also shifted toward looser policy — moving to cut its deposit rate further into negative territory and restarting its bond-buying program in a controversial decision earlier this month.

Nevertheless, as gloom builds around the eurozone economy, with Germany threatening to tip into recession and inflation remaining stubbornly low, many analysts see further weakness in store for the shared currency.

“Until the eurozone reaches a more credible fiscal/monetary policy mix, I expect inflation expectations and EUR/USD to fall further,” said Thomas Harr, global head of fixed-income and currency research at Danske Bank, in a Monday note.

Kit Juckes, global macro strategist at Societe Generale, sees the euro continuing a pattern that saw it make new cycle lows “in late April, late May, late July, late August, and now late-September.”

See: No end in sight for ECB’s inflation problem

“If it’s true to form, the downtrend can continue for a few more months, even if the pace is very restrained,” he wrote. “The ‘news’ isn’t new, the market’s short and bearish, and further out, forward-looking indicators are looking brighter. That said, new lows are likely in the weeks ahead.”