September U.S. dollar futures poked above 98.50 Friday morning, but have since slid from off the highs. The market encountered some resistance at that level and needed a breath after this week’s bull run back to last week’s highs. The greenback remains the reserve currency of the world, and if our benchmark interest rate remains relatively high, investors around the globe will find safety in the USD. Adding to the bull camp is the fact that the United States economy is holding up while other developed economies are struggling. Germany reported a GDP contraction, and appears to be barreling toward recession. Meanwhile, U.S. GDP came in line with expectations at 2.0% growth in Q2… slowing, but not contractionary. If uncertainty heightens and geological tensions continue, investors will likely move away from stocks and into cash, with the U.S. offering the most attractive cash market.

The bear camp in the dollar is banking on more rate cuts into Q4. The odds of a 25 bps September rate cut are now above 98%, with increasing odds of more cuts at later meetings. Will this be enough to break the dollar? I don’t think so. These odds are priced into the market and the dollar continues higher. In the case of a surprise 50-75 bps cut (as Trump is insisting), the dollar could finally break off its highs. Safe-haven currencies, like the yen and the Swiss franc, are well off their highs, with the yen holding up better than the franc. Should the dollar eventually break, these currencies stand to benefit the most. Commodity currencies, like the Australian and Canadian dollar, are rangebound. Seasonal trends prefer these commodity currencies to the safe-haven currencies, while the euro and the pound remain subdued, with rallies continuing to fail. However, it appears the pound may be finding a bottom with the Brexit situation coming to an end in October.