The US dollar has emerged as the strongest currency in the market this week, with the dollar index rising to a new high at 104.5 during the Asian session today. The increasing dollar strength had kept every other pair crossed against it down at a new low. EURUSD, for instance, has been pushed to a new low at 1.04840. The same holds for the Crypto and Stock markets. Thus, we find Bitcoin falling during the Asian session today to a new monthly low of $25,450.
Many fear that the dollar index is on its way to retesting the previous April high at 105 and is likely to break above it this time.
How does an increasing dollar strength affect other Currencies?
An increasing dollar strength in the market often spells doom for other currencies. This is because virtually all other currencies have been pegged to the US dollar as the standard for determining their exchange value. This means - the higher the value of the dollar; then the lower the value of other currencies pegged to it. In straightforward terms, an inverse relationship exists between the US dollar and every other forex pair in the market.
What impact does the US dollar have on Commodities, Crypto, and stocks?
The dollar index (DXY) also affects the commodity and crypto market. This is because the US dollar has been pegged to crypto and commodities. Hence there is an inverse relationship between them also. The other is bound to fall in the same proportion whenever one rises. This explains the sudden crash witnessed in cryptocurrencies, including Bitcoin and altcoins, during the Asian session today. As the dollar index rises to 104.5, Bitcoin is pushed to a new low of $25,450, with the other altcoins following a similar suit. Gold also has been pushed down from its high created last week in $1878 to a lower region in $1863 during the Asian
session today. Investors withdraw from risky assets to buy bonds, and the stock market is also down.
What are the significant factors to influence the US dollar this week?
- Producer Price Index (PPI): The PPI measures the change in the prices of finished products sold by producers. The PPI determines the consumer price index (CPI) and could be the best measure of inflation. This data is due to be released on Tuesday. The Forecast for this data is 0.8%, while the previous record was 0.5%.
- Retail Sales and Core Retail Sales: The retail sales data is used to measure the change in the total value of sales made at the retail level. It shows the vital consumer spending data. The core retail sales data shows the difference in the total sales value at the retail level, excluding automobiles. The Forecast for the latter is 0.8%, while the previous record is 0.6%. Higher readings from this data favour the USD dollar. This data is due to be released on Wednesday.
- Federal Open Market Economic Protection: This exercise is usually carried out only four times a year, marking the second session for 2022. The Fed uses this forum to communicate its economic and monetary protections for the rest of the year to investors. Further Hawkish stance from the Committee will favour the USD dollar. This event will take place on Wednesday also. Other reports to be given alongside this event are:
- FOMC statement
- Federal Funds Rate
- FOMC Press Conference
- Fed Chair - Jerome Powell speech: On Friday this week, Powell is expected to deliver welcome remarks at the Inaugural Conference on the International Roles of the US dollar. This event will take place in Washington DC.