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What’s Boosted the US Dollar

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US dollar posts second consecutive weekly gain

Last week, the US dollar index, which has seen continuous declines in the last two months, managed to close in positive territory for a second consecutive week. Increased demand for safe-haven assets during the recent equity market rout boosted demand for the US dollar in foreign exchange markets. In times of uncertainty, capital flocks to the safety of risk-free assets such as gold, US Treasuries, or safe-haven currencies such as the US dollar and the Japanese yen. The US dollar index (UUP) closed the week ended February 9 at 90.3, posting a weekly gain of 1.5%.

Speculator positions on February 6

According to the Chicago Futures Trading Commission’s Commitment of Traders report, large speculators and traders marginally decreased their bearish bets on the US dollar.

According to Reuters, net US dollar (USDU) short positions rose to -$12.9 billion from -$13.7 billion last week. This amount is US dollar contracts against euro (FXE), British pound (FXB), Japanese yen (FXY), Australian dollar (FXA), Canadian dollar (FXC), and Swiss franc contracts.

Could the US dollar’s rebound continue?

The US dollar’s rebound could continue if equity market volatility continues. Economic data, particularly January inflation data, could be a key driver for the US dollar this week. If US inflation improves further, it could increase the chance of more rapid rate hikes, which could impact equity markets. This impact could push the dollar higher. On the other hand, if markets stabilize, there could be a pullback in the US dollar. In the next part of this series, we’ll analyze US bond markets’ performance last week.

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