The U.S. Dollar surged against most major peers overnight while falling to commodity-based currencies as oil prices rose near their best levels since July. Markets were relatively quiet with the holidays taking traders away from their desks. Meanwhile, the greenback continues to benefit from improving indicators with the latest Consumer Confidence reading exceeding expectations.
The Bloomberg Dollar Spot Index, gauging strength against ten major counterparts, keeps climbing and is now around its best level in a decade. The rest of the week will bring very little in terms of risk, thus we foresee the dollar continuing to roam around multi-year highs.
Volatility is the name of the game when it comes to the prospects of a weakening Euro. Currently trading at its weakest levels since the fourth quarter of 2002, the shared currency is suffering from uncertainty over major political elections in 2017.
The rise of populist anti-open trade parties are casting doubt over the European Union’s ability to remain a cohesive unit with power to reign over monetary as well as social policy. The continent may be due for some changes as many member nations lack the ability to reform their fiscal situations, primarily characterized by austerity and lack of discipline.
The Yen has dropped 14.0% of its value since the beginning of November. Rising throughout most of the year on the basis of dwindling markets and hesitation from the Fed to hike its interest rate, the currency of the rising sun is now back to levels seen at the start of 2016. Policy divergence may remain a driver of Yen depreciation along with plans by Japan’s government to spend big league on infrastructure.