The US dollar index under the traders’ lens: what, how and why?

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The team of market analysts and Trade-24 marketing department decided to turn our attention to the position of the US dollar index, which suffered a significant impact due to a number of political and economic events. We are introducing the analytical overview of one of the world’s leading index of activity behaved over the past 30 days.

Gold, oil and the Fed rate

The last days of the market was the demand for commodities like oil, gold and aluminum. Data from China’s about aluminum supply, OPEC’s decision to extend the decision to reduce daily production until May, the stabilization the price of gold have led to a drop in confidence index for the US currency. Thus, in the period from 10th to 16th December, figures made fall to – 0.14% and – 0.17% respectively. In the run-up to Boxing Day, the US dollar index was on the corrective level, while maintaining its position, and only after January 9 level of reliability started a small fall.

Additional pressure on the US currency index commits the Fed, which since December 14 raised the base rate by 25 basis points to a level of 0.5%. It was also reported in various speeches by the leaders of the main banking regulator about increasing of possibility, that rates will be revised at least three times in 2017. Hawkish comments did their job – the value of the index added to the USD value at 0,26-0,28, which suggests the intention to further strengthen the dollar.

Donald Trump

US President-elect Donald Trump, who will take over as the 45th president on January 20, could affect both positively and negatively on the performance of the US dollar index. In particular, after the announcement of the election results on November 9, the index reached a value of 98.53, which is 2.63% higher than expected recovery.

1485525617However, the sharp, aggressive and unpredictable comments by Donald Trump also contributed to the index, which at the time of the President-elect’s press conference fell by 1.72% due to lack of clear statements about future financial and investment sector of the US economy.

Economists believe, that such rhetoric of Donald Trump could harm the reputation of the index for various reasons. In particular, the uncertainty regarding the policies of a number of state programs, the opportunity of high inflation of the dollar and the rise of the upper limit of external debt borrowing could weaken the index position. However, if it performs the inflation targeting, the increased demand of traders and market to the strong settlement currency for goods and services,  it should not be excluded the increase in performance of the US currency index.

Eurozone and Asian markets

Over the past 30 days, Asian and European markets continued to show interest in the index of the US currency for a number of reasons, among which were the Brexit impact on the EU, the problematic credit programs in Italy, Greece and Spain, as well as the fall of the Chinese trade surplus, PBOC decision about borrowing program and the loss of confidence in the Japanese yen and the Nikkei 225. Also the serious political processes in the EU in 2017 as the parliamentary elections in the Netherlands and Germany, the presidential elections in France can seriously affect the strengthening of the dollar in these areas.

Economists tend to believe, that many of the representatives of this segment of the market tightly used to calculate the dollar and buy many goods and services, so it gives as a base currency of the commission, they can not financial transactions. In addition, the additional influence of many political factors in the EU do not allow the index of the US currency back on its performance index increased demand and confidence. In any case, experts predict a significant volatility of the dollar index and the fall in the level of 2-3%, if the markets and investors do not react properly to problems in the EU and Asia.

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