U.S. dollar is on fire and slicing through key technical levels `like a hot knife in butter’

The U.S. dollar is back on the upswing again and headed toward the year-to-date highs seen in mid-July following a period of relative dormancy for the last month as investors pulled back on expectations for an imminent U.S. recession.

The ICE U.S. Dollar Index DXY, 0.58% soared 0.6% to 108.12 on Friday on its way toward the year-to-date high reached on July 14. Overnight, the greenback sliced through key technical levels against three of its major counterparts — the euro, British sterling, and Japanese yen — “like a hot knife in butter,” suggesting the dollar has enough momentum to keep going even higher, said Marc Chandler, managing director and chief market strategist at Bannockburn Global Forex in New York.

Much of what drives the dollar depends on what’s going on in the rest of the world. In this case, the euro zone is at risk of a recession, Russia’s economy has already contracted sharply, U.K. inflation has topped 10%, China’s central bank has unexpectedly cut interest rates amid signs of slowing growth, and Pacific Rim nations like Japan are on edge about a possible war over Taiwan.