The US Dollar Index fell sharply in the second half of 2020 due to financial turmoil and poor consumer confidence data in the United States. After a relatively strong run which had boosted the Dollar Index for most of the year, the index crashed down in January and February as other countries’ economies faltered.
However, the weaker data from the U.S. and strong consumer confidence data in other countries have put the index back on its feet. As a result, the currency index has continued to weaken, and now is hovering around 69.4.
While the strength of the US Dollar Index is very much dependent on the political situation in the United States, the weakening of the index has been driven by the problems that the US economy has faced. It is also very much dependent on the weakness of the U.S. and global economies. To some extent, the strength of the USD Index is also dependent on the strength of the stock market.
The weak retail sales data has also created problems for the US economy. This has led to a lot of uncertainty for the investors, particularly with regard to the state of the consumer confidence. Both of these factors are very important for the economic health of the country.
Over the past few weeks, the experts and analysts had predicted a recovery in consumer confidence data and stronger retail sales data. Some economists even predicted a rebound in the US’s Gross Domestic Product (GDP) growth rate.
However, the data which they saw as signs of a recovery in the US economy was based on the weak GDP. In other words, their forecasts were based on information which was never released. One cannot therefore conclude that the strength of the US Dollar Index is really due to the strength of the consumer confidence and retail sales.
Some analysts have also pointed out that the strength of the consumer confidence data in the United States has also been driven by the strengthening of the US Dollar Index. It is therefore possible that the stronger US Dollar Index will be seen as a sign of an improvement in the US economy rather than a sign of a currency crash.
The strength of the Euro and the European economies has been a big driver of the USD Index over the past few months. However, the Euro has gone negative after the ECB announced that it would do whatever it could to hold inflation at bay.
On the whole, the weakness of the Euro has caused the weaker retail sales data to create a lot of uncertainty about the strength of the US economy. With the euro falling, it is likely that the Dollar Index will also start to fall, and it will be up to the Fed to decide whether the Fed should raise interest rates or not.
So far, many analysts believe that the Fed will raise interest rates over the next year, but the weakness of the USD Index is also leading some to predict that the Fed will wait till the euro sinks lower before deciding to raise rates. One of the reasons for this is that if the Fed raises rates now, it would signal the Europeans that they are ready to follow suit, so they will also follow suit.
If the Fed chooses to wait until the euro sinks lower, it will leave the Euro weaker and stronger. This will give the US economy more time to recover and so it is expected that the Fed will raise interest rates at the end of the year.