Fundamentals continue to underpin dollar strength

We estimate that, on balance, the US dollar’s “fair value” has risen alongside an appreciation of the greenback against most major currencies. This increase in fair value largely reflects the relative strength of the economic recovery in the US as well as the surge in US government bond yields over the past few months. Although our estimates suggest that the dollar remains a bit overvalued, we doubt this will be a headwind for the greenback as we expect the favourable backdrop underpinning dollar strength to persist.