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What’s Dragging the Dollar Down?

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Jun. 26 2017, Updated 5:44 p.m. ET

Weak US data weighs on US dollar

The US dollar (UUP) index had another tight range-bound week this summer. The US Dollar Index oscillated between 97.5 and 96.9 for the entire week and closed 0.22% lower as compared to the previous week. Economic data had limited but an overall negative impact on the US dollar. Lower-than-expected housing starts and weaker consumer sentiment weighed on the US dollar in the previous week. The US dollar lost ground against the Japanese yen as risk aversion increased the demand for the yen (FXY) in the later part of the week. 

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There were mixed signals from the US FOMC members who spoke on different occasions in the previous week. The Cleveland Fed’s Loretta Mester advocated for faster rate hikes, while the St. Louis Fed’s James Bullard preferred a wait-and-watch approach. Mixed signals from Fed members could mean a delay in the next rate hike, and this view also added to the US dollar’s weakness.

Traders increase the US dollar-long positions

As per the latest Commitment of Traders report, large speculators have continued to decrease their positions in the US dollar. According to Reuters, the total long US dollar position stood at $7.8 billion as of June 20, an increase of $1.3 billion as compared to the previous week. The reason for this increase is because this dollar amount is calculated in comparison to the total open contracts of the euro (FXE), the British pound (FXB), the Canadian dollar (FXC), the Swiss franc, the Australian dollar (FXA), and the Japanese yen.

Another low volatility summer week ahead

Economic data releases for this week include durable goods, Case-Shiller home prices, consumer confidence, pending home sales, and a third revision to the Q1 GDP. Fed speakers include Fed chair Janet Yellen, the Philadelphia Fed’s Harker, and the Minneapolis Fed’s Kashkari. Markets might be searching for further clues about the next rate hike and the Fed’s balance sheet trimming exercise. Overall, we can expect another range-bound week for the US dollar.

In the next part of this series, we’ll analyze how bond markets are expected to behave in a supply-heavy month.

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