U.S. Dollar Steady Amid Stock, Bond Market Turmoil

The U.S. Dollar closed higher on Friday against a basket of currencies as investors jumped into the greenback in reaction to wild swings in global stock and bond markets. Some investors were covering shorts and taking profits. Others felt the dollar was a good investment due to rising Treasury yields. Still other liked the dollar’s appeal as a safe-haven currency due to the volatile moves in the equity markets.

March U.S. Dollar Index futures settled at 90.334, up 0.218 or +0.24%.

Traders and investors may be making their decisions in response to volatility, diminishing the importance of the traditional fundamentals and economic data. While the dramatic moves may have been in the stock and bond markets, the Forex markets didn’t see a huge uptick in volatility. However, several currency trends were disrupted when the dollar strengthened.

EUR/USD

The EUR/USD was one market that felt the impact of the increased volatility in stocks and bonds. Since mid-December, investors had been buying the Forex pair in reaction to an expanding Euro Zone economy and on expectations the European Central Bank will shrink its balance sheet sooner than expected. Traders started selling the EUR/USD on February 2, leading to lower closes in 5 out of 6 sessions.

On Friday, the Forex pair reached a key short-term retracement zone, just slightly above a major 50% level at 1.2166. This fueled a technical closing price reversal bottom. This chart pattern may not mean the short-term trend is changing to up, but it may mean the buying is greater than the selling at current price levels due to oversold conditions.

On Friday, the EUR/USD settled at 1.2251, up 0.0005 or +0.04%.

USD/JPY

The Dollar/Yen finished the tumultuous week with a higher close on Friday. This may be a sign that investors feel the worst is over in the stock market. It could also be an indication of investor uncertainty ahead of the week-end.

The USD/JPY settled at 108.757, up 0.011 or +0.01%.

 

On Friday, the Dollar/Yen posted a volatile two-sided trade in reaction to relatively calm bond markets and a wild stock market. The dollar was supported early in the session when Treasury yields continued to hover just slightly below 4-year highs. It retreated against the Yen when yields dropped in reaction to increased demand for safe haven assets.

Triggering the demand for the safe haven U.S. Treasury Bond was an intraday sell-off in the U.S. stock market. However, a late session rebound in equities was enough to fuel a short-covering rally in the USD/JPY, leading to the higher close.