Chart of the Day: Trade-weighted USD
We looked at the USDX yesterday as the Chart of the Day. Price continues to test the ceiling of 98.05. However, the big new development has been a new all-time high printed in the trade-weighted USD. This is significant, and won’t have gone unnoticed by both US President Donald Trump and the Federal Reserve. It’s weighed on emerging-market (EM) FX, with big declines seen in the BRL, MXN and TRY.
Outside of EM FX, markets seem to be taking this USD move quite well. But should we see weakness in the global data flow re-establish itself, then expect volatility to come back into market moves. The combination of weak economic data, a Fed that still sees the US economy mid-economic cycle, and a strong USD is a toxic mix and a recipe for far higher implied volatility and risk aversion.
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