Jan 30 2018

Will dollar trace a bottom?

Wow, the forex markets continue to excite (have spent almost 2 decades and still feel young, energetic and exploring – miles to go J)

Latest obsession is Euro/GBP/major currencies’ surge and the resultant plunge in the dollar index. There have been dramatic moves in currencies since the beginning of the new year (to say the least). From the global currency war of words between US Treasury Secretary Steven Mnuchin and ECB’s Mario Draghi to the spikes in developed markets’ bond yields – increasing indications that financial markets volatility is here to stay. I had indicated in my December’17 article – be prepared (and be aware too) for increased volatility in 2018. The first month has offered ample evidences.

Analyzing what has really happened to warrant such a warning, let’s check the rebased chart below – it is dollar’s change vis-a-vis various currencies – time frame 1st January 2018 till date:

 

Indian Rupee (INR – Orange dotted line) and Korean Won (KRW – purple line) are near the zero line – indicating no major change.

Singapore Dollar (SGD – blue line), Chinese Yuan (CNY – green line) and Japanese Yen (JPY – yellow line) have also posted handsome gains at 2.06%, 2.76% and 3.52% respectively.

European currencies have gained the maximum – British Pound (GBP – red line) and Swiss Franc (CHF – pink line) have gained a whopping 4%, followed closely by Euro (EUR – grey line) at 3.12%. Please do recall that these gains are in addition to ones made in calendar year 2017 when Euro had surged 13% and GBP had soared 9%.

Will Euro and GBP continue to gain is a billion dollar question. I am biased towards a dollar recovery (specially against European currencies) – excesses rarely sustain.