It seems paradoxical and puzzling that the dollar has gained 2% since last month as investors recently predicted it was about to pull back. The dollar index, which measures the value of the US dollar against six other major currencies, has risen 2% since mid-April to 103. Of course, it remains about 10% below the 20-year high it hit in September when it reached 114.78 item.

According to investors, the dollar will move down, because. inflationary pressure in the United States are intensifying, and the prevailing opinion is that Federal Reserve could stop the increase in interest rates in June. Analysts, however, note that the US currency is being pushed by a mixture of disparate factors, primarily fears that are causing a number of negative events: protracted negotiations to increase the superpower’s borrowing limit, a banking crisis, but also a picture of the global economy with a constant suspicion of an impending recession. In the meantime, there are signs that the Fed may continue to raise interest rates and that investors will be influenced by some clearly more technical factors.

Currency strategists explain the growth of the dollar by the fact that it is strengthened by disagreements over the increase in the borrowing limit. In fact, Democrats and Republicans are approaching an agreement to raise the borrowing limit from $31.4 trillion. dollars. But for now, the risk of a catastrophic US default remains at a time when many banks are faltering. But when markets face such risks, they usually turn to less risky investments such as bonds, gold and the dollar. Speaking to Reuters, Esther Reichelt, currency analyst at Commerzbank, stresses that “the dollar’s recent strength is mainly due to strong demand for safe havens in the face of the unknown, or rather the many unknowns.”

The share of the European currency in international trade last month fell to its lowest level in three years.

Some of the many unknowns relate to how vulnerable US regional banks are and what could happen if the US borrowing limit hike dispute escalates. Another unknown factor is the alarming data on global economic growth, which is pushing investors to safe-haven markets. China’s economy is slowing down in April, according to the latest data released this week. However, not everyone shares this point of view. Alvin Tan, head of currency strategy at RBC Capital Markets, disputes the safe haven argument. He points out, on the contrary, that when investors are worried, stocks fall. And the S&P 500 hasn’t changed since mid-April, but is up more than 8% since the start of the year. Investors’ concern that the Fed has so far failed to curb inflation is playing a role, Tan said. A University of Michigan survey released last week shows that consumer expectations of higher inflation are at their highest level in five years and are boosting both bond yields and the dollar.

Other analysts believe that some purely technical factors play a role, namely, investors’ excessive bet on the fall of the dollar, the well-known short against the US currency. Last week, those hedge fund short positions reached $14.56 billion, the highest since mid-2021. The paradox is that these bets on the dollar falling could lead to its rise. If the dollar rises slightly at the time these bets are made, then some of those who sold it will be forced to close their positions and buy dollars, raising their value.

At the same time, the share of the euro in international transactions is declining and last month reached its lowest level in three years. According to Swift, the share of cross-border transactions in euros fell to 31.74% in April from 32.64% in March. The reason is the expansion of the use of the dollar, which continued after the collapse of some regional US banks. At the same time, the share of the dollar increased to 42.71% from 41.74%. However, at the same time, the increased use of the yuan in cross-border transactions also played a role. According to currency analysts, the Chinese currency has benefited from the economic war between the West and Russia, as its international use has increased significantly after the imposition of Western sanctions against Moscow.