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.
US Dollar Gains; Equities Lose
Daily Analysis - 01/03/2018