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In 2022, the US dollar has been very strong, despite the global economic slowdown and rising inflation worldwide. 12 days ago, the US Dollar Index (DXY) rose to a high of 114.8, and since then the index has retreated, and a recent analysis by economists at Société Générale notes that the index is likely to rise back towards 114.8- the height.
The US dollar, otherwise known as the greenback, has been a formidable foe against a myriad of fiat currencies this year. A large number of fiat currencies such as the euro, pound, yen, yuan and Australian and Canadian dollars have all suffered from the dollar’s strength. On September 27, the US Dollar Index (DXY) hit a high of around 114.8, a high not seen since 2001. The DXY is an index used to measure the value of the dollar against six different fiat currencies.
The basket of fiat currencies traded against the US dollar consists of the EU euro, Swiss franc, Swedish kroner, British pound, Canadian dollar and Japanese yen. However, the six-currency basket is not evenly distributed, as the euro comprises 57.6% of the basket, and the yen is the second largest component at 13.6%. The index provides traders, analysts and economists with a fair assessment of the dollar’s strength against the curve of foreign currencies.
DXY was introduced in 1973 when US President Richard Nixon removed the gold standard and the Bretton Woods Agreement was dissolved. At that time, the DXY originally started with a base of 100 and the index has risen a lot since then, reaching an all-time high in February 1985. At that time in 1985, the DXY lost 160.41 and to break the record from the last record of 12 days ago, the index would have to increase by more than 39%.
Economists from the French-based financial company Société Générale SA (Socgen), believe that the DXY is heading back towards the 114.8 area after the latest decline. “A pullback towards 113.60 and the top near 114.80 is not out of the question,” the Socgen economists said on October 7. The economists further state that a break below the 110 region would suggest a deeper pullback, but the DXY is currently trading at around 112.747 on Sunday afternoon at 11 (EST).
“Only if the 110.00/109.30 support zone is breached would there be a risk of a deeper pullback. In such a scenario, [the] the next target may be at [the] September low at 107.60,” the Socgen economists wrote in the company’s US dollar and market outlook note. “The daily RSI remains in bullish territory, indicating the spread of upward momentum,” the economists added.
Currently, five-day calculations indicate that the Euro is down 2.39% against the US Dollar, while the Japanese Yen is down 1.02%, and the British Pound is down 3.19%. An ounce of gold is down 1.04% against the dollar this weekend, and silver is down about 2.47%, but still above $20 per troy ounce of 0.999 fine silver. The global crypto market cap for all cryptocurrencies in existence has increased by 0.08% in the last 24 hours, and the crypto economy is currently valued at $944.60 billion.
Stock markets closed in the red Friday afternoon as the Nasdaq fell 3.8%, the Dow Jones Composite lost 2.05%, the NYSE fell 3.34% and the S&P 500 saw a 2.8% decline. More than one trillion nominal US dollars were wiped from the US stock market on Friday, or a USD value greater than the size of the entire crypto-economy today.
What do you think about the US dollar rebounding and heading towards recent highs? Let us know what you think about this topic in the comments section below.
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