US Dollar Remains Out Of Favor
New York (Feb 15) The US dollar fell against all the major currencies over the past week. Helped by speculation that the Bank of England will likely hike rates before it currently envisions, lifted sterling to its highest level since April 2011, as it tacked on almost 2% last week. Even the Japanese yen strengthened against the dollar despite the rise in equities and an increase in the US interest rate premium over Japan. We had generally anticipated the weaker dollar, but did not expect the yen to have participated.
The technical indicators we use are not providing any compelling reason to try picking a top in the foreign currencies or a bottom to the US dollar, though we recognize that sterling is a bit stretched and bumping against the upper Bollinger Band. This raises the risk of some consolidation at the start of the new week. Yet with the March 2015 short sterling futures still falling (implying a yield of just over 100 bp compared with the current 50 bp base rate), the consolidation may be shallow and brief.
US Dollar Index closed Friday at 80.13, down 0.21 on the day.