A seemingly unstoppable rally drove the dollar to a record streak of weekly gains amid bets the Federal Reserve will keep interest rates higher for longer.

The Bloomberg Dollar Spot Index barely budged Friday, while notching its eighth straight up week — the longest such run since 2005. The S&P 500 edged higher after a three-day drop. Nvidia Corp. and Tesla Inc. weighed on the megacap space, while Apple Inc. bounced after a rout that erased US$190 billion in value just a few days before the unveiling of the iPhone 15, new smartwatches and the latest AirPods.

Every major currency has slid against the greenback during the past month, with emerging-market heavyweights such as the Chinese yuan and the Indian rupee hovering near record lows. The recent dollar rally reflects the fissures that are opening in the global economy, with reports signaling that the U.S. is accelerating even as growth cools in Europe and China.

The advance sent currency’s 14-day Relative Strength Index above 70 — which is seen by many traders as one indication of an overbought market.

“The dollar has become quite overbought and overloved,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Therefore, it’s getting ripe for a pullback. Sentiment is reaching extreme levels for the greenback, and thus that doesn’t leave many more buyers to take it higher at least over the near-term. Short-term traders should be careful about long positions in the dollar.”

Laura Cooper, senior investment strategist at BlackRock said the dollar upside has been surprising.

“We question the sustainability of that, largely as we look forward to the Fed, we think it is going to signal a hawkish pause,” she told Bloomberg Television.

Meantime, HSBC Holdings Plc has made a u-turn on its dollar forecast, predicting the world’s reserve currency will now strengthen well into next year given weaker global economic prospects. 

“King dollar has already been making a comeback but its reign can last longer,” the strategists wrote in a report. “As tightening begins to bite, a faltering global growth outlook should further benefit the counter-cyclical dollar.”

To Will Compernolle at FHN Financial, while markets are expecting rate cuts to begin in the second quarter of next year, an extended pause at the terminal rate that’s seemingly being suggested by current Fed communication would support dollar strength in the year ahead. 

“This, in turn, supports lower import prices that contributes to disinflationary pressure,” he noted.

Fedspeak

Fed Bank of New York President John Williams said late Thursday US monetary policy is “in a good place,” but officials will need to parse through data to decide on how to proceed on interest rates. His Dallas counterpart Lorie Logan noted that skipping an interest-rate hike at the central bank’s upcoming policy meeting may be appropriate, while also signaling rates may have to rise further to get inflation back to 2 per cent. 

The rising threat of interest rates staying higher for longer is likely to dent prospects of a soft landing for the US economy and drive a selloff in stocks over the next two months, according to Bank of America Corp. strategists led by Michael Hartnett.

The consensus probability of a hard landing is “around 20 per cent,” but oil, dollar and bond yields remaining elevated, as well as tighter financial conditions, “remain the September-October risk,” they said.

Meantime, BofA rates strategists abandoned their recommendation to be tactically long 10-year Treasury notes, seeing risk that US economic resilience could drive the yield to 4.75 per cent.

While they continue to expect 10-year Treasury yields — which reached a multiyear high last month — will end the year around 4 per cent, that forecast is at risk, strategists led by Mark Cabana wrote in a note. 

Corporate Highlights

• Goldman Sachs Group Inc. is planning its annual cut of underperforming workers beginning later next month, a person familiar with the matter said.
• Barclays Plc is preparing to cut hundreds of jobs as soon as next week as the firm looks to trim costs amid quieter markets. The lender is planning to dismiss about 5 per cent of client-facing staff in the trading division as well as some dealmakers globally as part of the cuts, according to people familiar with the matter.
• Kroger Co. rose after agreeing to sell 413 stores to C&S Wholesale Grocers in a divestiture designed to help win antitrust approval for its $24.6 billion merger with Albertsons Cos.
• Snowflake Inc. advanced after D.A. Davidson started coverage on the infrastructure software company with a buy rating.
• Smith & Wesson Brands Inc. jumped after the firearm manufacturer reported earnings that beat estimates.
• RH sank after the midpoint of the home-furnishing company’s revenue forecast missed the average analyst estimate.
• Liquefied natural gas workers at key Chevron Corp. sites in Australia began partial strikes Friday after talks failed to reach an agreement in a dispute that’s roiled global gas markets.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.1 per cent
• The Dow Jones Industrial Average rose 0.2 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0701
• The British pound fell 0.1 per cent to $1.2456
• The Japanese yen fell 0.4 per cent to 147.85 per dollar

Cryptocurrencies

• Bitcoin fell 0.5 per cent to $25,882.59
• Ether fell 0.3 per cent to $1,634.01

Bonds

• The yield on 10-year Treasuries was little changed at 4.25 per cent
• Germany’s 10-year yield was little changed at 2.61 per cent
• Britain’s 10-year yield declined three basis points to 4.42 per cent

Commodities

• West Texas Intermediate crude rose 0.5 per cent to $87.33 a barrel
• Gold futures were little changed

This story was produced with the assistance of Bloomberg Automation.