USD INDEX GRAPHIC REWIND
The dollar index
(DXY) maintained its bid tone throughout Thursday and into early Friday trade as negative sentiment piled up. The Pound
came under intense pressure early Thursday following its wider than expected trade balance and the market once again became concerned about how the UK would slash its huge budget deficit. The theme of how and when governments will start slashing budgets lingered over European trade and led to broad dollar strength. Players have also become concerned that as governments do implement austerity measures, growth is likely to be hampered, slowing the global recovery, even possibly allowing for a double-dip in some economies.
The dollar has also benefitted over the recent period not only from safe haven plays but also as investors begin to bet on the US recovery taking hold and the potential of interest rate hikes from the Fed. As US fundamentals continue to improve and equity markets show resilience, the market will begin to price in future hikes and the narrowing of yield differentials, making the dollar a more attractive currency to hold.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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