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James Hyerczyk
U.S. Dollar

After posting a volatile two-sided trade last week due to a slew of economic concerns, the U.S. Dollar plunged against a basket of major currencies on Friday to finish the week sharply lower. Early in the week, the dollar was underpinned by worries over a global economic slowdown and dovish central bank comments, but at the end of the week a dovish report about future Fed policy pulled the support from the greenback.

On Friday, March U.S. Dollar Index futures settled at 95.465, down 0.832 or -0.86%. For the week, the index finished down 0.528 or -0.55%.

Daily March U.S. Dollar Index

The U.S. Dollar hovered near a three-week high at the start of the week as investors sought the protection of the U.S. currency after China reported weak Q4 GDP data and the International Monetary Fund (IMF) cut its forecasts for the world economy in 2019 and 2020.

The IMF cut its growth forecasts for 2019 and 2020 because of weakness in Europe and some emerging markets. It also said failure to resolve trade tensions could further destabilize the global economy.

Mid-week, the dollar traded sideways as investors continued to assess the impact of the government shutdown on the economy, while dealing with the uncertainty over U.S.-China relations after a report said that the U.S. had cancelled the high level meetings scheduled in Washington on January 30-31. However, the government denied the report and the meetings are expected to take place as scheduled.

The dollar was driven to its high for the week on Thursday in reaction to dovish monetary policy statements and remarks from the Bank of Japan and the European Central Bank.

Weekly March U.S. Dollar Index

On Friday, the greenback plunged to its low for the week after a report that Federal Reserve officials are nearing a decision on when to end the reduction of the bonds it is holding on its balance sheet, a key consideration for investors watching how far the central bank will go in tightening monetary policy, according to The Wall Street Journal.

Dollar traders also said investors were beginning to price in with certainty the Fed’s widely expected decision to leave interest rates unchanged at its policy meeting on Wednesday, January 31.

Also on Friday, U.S. Dollar investors showed little reaction to a rise in U.S. Treasury yields after President Trump made the official announcement the government would temporarily re-open. Traders said their main focus is on Fed policy at this time and U.S.-China relations. They also expressed disappointment that congress couldn’t reach a more comprehensive agreement.

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