Why's the Dollar Rallying Again?

From Jack Crooks, Editor of World Currency Options and The Money Trader

What's Happening:

Everyone was just warming to the idea of a new dollar low - and now the buck started to rally.

What's the driver? Maybe the decline in gold coupled with a small pullback in crude (see chart below)? But because they have been correlated, it is tough to say one or the other is the driver.

What We Say:

The new theme seems to be higher U.S. interest rates (the better than expected durable goods report Wednesday has helped validate this view). Also, the Fed may actually hike rates before the end of the year at least according to a lead story in the Financial Times yesterday. Whether it's true or not, the fact that it was in the paper represents a major shift in expectations.

I'm not so sure about forecasting a Fed rate hike. But I've seen a decent move down in U.S. 10-year Treasury notes lately i.e. higher rates. And 10-year notes have been yet another price series moving in tandem with the US$ index. Below a chart of 10-year note futures vs. US$ Index Inverted (red line):

As You Can See, 10-Year Notes Have Been Stalking the U.S. Dollar Index

With 10-year notes tracking the U.S. dollar index, it's not certain what the Fed will decide to do next.