Dollar index snaps four week bull run

Friday, March 20, 2015

The dollar index headed for its worst weekly loss since 2013 as the greenback pared recent gains against a basket of major currencies. Investors continued to mull over the details from this week’s FOMC meeting and accompanying comments from Fed Chair Janet Yellen. Despite recovering substantial territory yesterday, adding 1.48% against a basket of its major peers as it ended the session at 99.260 after starting the day on the back foot, the dollar index is currently on track to close 1.2% lower after losing as much as 3.63% earlier in the week. The dollar index has experienced a meteoric rise over the past few quarters as investors factor in an expected increase in interest rates, having gained as much as 25% since June last year in what is broadly an impulsive rally, with particular gains against the euro and pound sterling. As the index remains on track to snap a four week bull run this week we could see additional weakness in the coming sessions.

The EU is taking further action towards stepping up the economic sanctions against Russia with EU leading agreeing last night that current measures would be maintained unless the ceasefire between Russia and Ukraine which was brokered last month is implemented in full by Moscow. The outcome on the first day of a two day summit in Brussels failed to satiate some representatives who had hoped for an immediate renewal of the current sanctions in place which are due to end in July. The Russian oil industry has been hit particularly hard as a ban on outside nations selling sophisticated oil drilling equipment to Russia has severely hampered their energy sector. Adding to the mounting pressure facing Moscow has been the recent slump in crude oil prices with front month Brent futures pulling back below $54.50/bbl yesterday as the fundamentals remain significantly out of balance.  

The chief economist of the Bank of England offered his view on interest rates and yesterday commented that markets should consider the possibility of a further cut in interest rates. Andy Haldane, in a speech given earlier this week commented that the chances of a rate rise or cut were “broadly evenly balanced” and while stressing this was his personal view his outlook still provided market participants with food for thought. His views stand in stark contrast to those of Bank of England Governor Mark Carney, who recently stated that it would be foolish to cut rates or expand QE in response to falling oil prices.

DXY pares recent gains on Fed comments

DXY Curncy DOLLAR INDEX SPOT 2015 03 20 07 24 18

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Topics: US Fed, Crude oil, Brent, BoE, DXY
More from: Kash Kamal