USD: Currency Index & Volatility

Relative Currency Strength

The main market drivers of the past week were the central banks, with their decisions or expectations of thereof causing a number of sharp reactions from the observed indexes. The first such response came on early Wednesday, when weak CPI numbers increased the odds of a rate cut from the RBA and pushed the Aussie’s gauge to tumble below 99.0 points. The blow proved to have a long-lasting effect, as the index continued to weaken till the end of the period, ultimately posting the week’s greatest loss of 3%. The next Asian session brought next major moves, this time seeing the concerned indexes shoot up. First, as the RBNZ restated its readiness to introduce further easing, but left rates unchanged and voiced expectations of strengthening in inflation, the Kiwi’s measure jumped above its peers to 100.8 points and held around the +0.5% line for the rest of the week. A few hours later the BoJ surprised the market by refusing to add new easing measures to its policy, and the JPY Index surged 2 points, setting off a sharp uptrend and finishing the week with a 3.4% gain.

The USD Index spent most of the period among the steady gauges, but took a hit at the yen’s surge on Thursday. The measure pared some losses soon after the drop, with the advance peaking after strong personal consumption data release, but failed to hold the momentum. Ultimately, the dollar posted weekly losses against most of its major peers, and its index ended the week with the second greatest decline.

Volatility

Volatility on the market remained largely subdued, as the overturbulence measure barely rose to one third, even with the big moves on Wednesday and Thursday. The week’s most active currency was the pound, which posted 38% of elevated volatility, with the Greenback’s 34% reading as the second highest. Meanwhile, the highest peaks were reached by the yen’s, the Kiwi’s, and the Aussie’s turbulence gauges, which spiked to 10.6, 5.9 and 5.2 points at the respective interest rate announcements for the two former indexes and disappointing CPI release for the latter. The rest of the currencies stayed relatively insensitive to the domestic economic releases and reached their highest activity peaks against the background of the previously mentioned events.

The week was relatively calm for the dollar as the most resonant news came from the Asia-Pacific region. Nevertheless, there were several rather notable volatility spikes when the dollar’s gauge surged above the market’s measure. Firstly, the dollar’s gauge almost reached 1.5 points after lower-than-expected consumer confidence release on Tuesday and reacted with the same activity spike to the Fed’s interest rate decision on Wednesday. Lastly, a batch of US economic releases, including personal income and spending and Chicago PMI, managed the dollar’s turbulence measure to surge to the 1.6 level on Friday.

Currency Significance

In its average readings, the dollar’s significance was little changed from the previous week, with the aggregate and the USD/EUR components all posting values in line with monthly readings. Thus the Greenback’s composite mean added 0.05 points on the previous week’s results and stood 0.01 above its monthly value. The average values of the USD/EUR components also stayed mostly unchanged, deviating for 0.01-0.05 points from the previous readings. The only exception was the USD/EUR-USD/JPY component, which gained 0.22 points as the pairs’ bond returned to being moderately positive. Other USD/JPY components also recovered after a fall into the negative area in the previous week and spent the second half of the period showing strongly positive values.

Continuing the previous week’s final move, the dollar’s measure started off with a decline and reached its low of 0.18 in Monday afternoon. Afterwards, recovering USD/JPY components fueled the measure, and at the time of the US PMI and consumer confidence data releases on Tuesday the composite reached its high of 0.58. On Thursday, as the dollar slipped against the background of the yen’s surge, the USD composite strengthened and added 0.15 points. The next rise of the measure took place on Friday, as it jumped to the 0.56 mark, gaining 0.12 points. The measure then lost some points and ended the week at the 0.41 mark.

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