The US Dollar, which retreated to three-year lows last month, has taken a boost from the Fed chair’s comments and expectations as expressed in his testimony last Tuesday. The dollar index against a basket of six major currencies rose to the highest level since January 19th at 90.744.
The index has managed to drop down to a three-year trough of 88.253 set in mid-February when fears of a ballooning U.S. budget deficit and lingering worries that Washington could pursue a weak dollar policy took a toll.
As per comments from a senior strategist at SMBC Nikko Securities in Tokyo, the rebound of the US dollar could have a negative impact on the crude oil prices and in turn cool down inflation expectations. In that case, the equity markets could be forced to undergo significant adjustments.
A stronger US Dollar tends to weigh on dollar-denominated commodities including crude as it makes them more expensive for non-U.S. buyers of dollarized goods.
Also important to note is the pressure the Euro has experienced on Wednesday after data showed euro zone inflation is slowing to a 14-month low which underscores the European Central Bank’s caution over removing its monetary stimulus. Meanwhile, uncertainty also looms over the common currency ahead of the Italian election on March 4th.