Geopolitical Concerns Spike USD to Highest Level in More Than Year

The U.S. Dollar began the week trading steady-to-lower against a basket of currencies as some investors took to the sidelines ahead of Friday’s U.S. consumer inflation data. The early weakness was attributed to an easing of tensions over the trade dispute between the United States and China that had been fueling a flight-to-safety rally since late July.

Dollar bulls had been slowly liquidating long positions early in the week as it looked as if buyers would have trouble overtaking the July top at 94.440 without a major catalyst. That catalyst arrived on Thursday, producing a strong reversal to the upside that eventually led to Friday’s surge to its highest level since May 17, 2017.

September U.S. Dollar Index futures settled the week at 96.218, up 1.257 or +1.32%.

To Recap the Week:

The dollar rose on Monday, building on two consecutive weeks of gains, as investors bet that trade war rhetoric and a strong U.S. economy would continue to drive the currency higher.

Traders said the dollar is strengthening against emerging-market currencies as investors bet an escalation in trade war concerns would hit these export-oriented economies harder.

Investors began shoring up profits on Tuesday and Wednesday ahead on Friday’s consumer inflation report. The index rose to its highest level in more than a year the previous session, before dropping back and moving lower for two sessions. Analysts said dollar bulls needed a fresh catalyst to move above its recent highs and were not willing to chase it higher at current price levels after several attempts to breakout of the trading range failed.

Contributing to weakness in the dollar index was a technical recovery in the Euro and a rally in the Japanese Yen that was spurred by reports that Bank of Japan board members had disagreed on how far interest rates should be allowed to move from the central bank’s targets.

The dollar began to pick up strength on Thursday as investors bet global trade tensions and a robust U.S. economy would continue to support the currency.

Bullish traders continued to gain the upper hand in the trade war scenario over emerging markets on the notion that tariffs may actually narrow the U.S. trade deficit. In economic news, better-than-expected data on U.S. initial jobless claims and generally rising producer prices also helped the dollar hold its gains.

Finally on Friday, the U.S. Dollar Index spiked to its highest level since May 17, 2017 after the Euro plunged against the greenback to its lowest level in more than a year as a steep drop in the Turkish Lira sparked a massive flight-to-safety exodus into the dollar.

The dollar was underpinned slightly after data on Friday showed that core consumer prices rose 0.2 percent in July, in line with economists’ expectations and the same gain as in May and June.