USD: Currency Index & Volatility

Relative Currency Strength

The Greenback was holding on an uptrend throughout the whole trading week, with its index reclaiming the pre-Thursday level in the first two days of the period. All in all, there were no strong positive news on US economy, but the dollar benefited from the pessimistic announcements on its peers’ economies. The index grew by 1% on Wednesday, amid the sharp 1.5% drop of the Loonie’s gauge, which was undermined by the BoC decision to cut interest rate. Later, Thursday’s ECB press conference and growing anticipation ahead of the Greece Parliamentary election posted new losses for the Euro and offered new support for the strengthening of the US dollar.

The week was dynamic for the biggest part of the currency indexes. In the aftermath of the SNB decision, the frank’s index was the most volatile one during the observed period, but its ups and downs eventually led it to finish the week at the base value. The Greenback became the top performer, gaining against all of its counterparts. The yen has demonstrated similar appreciation, and the pound’s index was growing throughout the whole period. The EUR Index, in turn, started the period with a 1.5% growth, but noticeably dropped after the ECB comments on Euro zone’s monetary policy. The Pacific currencies and the Loonie experienced the greatest losses.

Volatility

The US dollar started the week with elevated volatility, mostly caused by the Swiss franc that was still too unstable. However, lacking support of any influential events, the composite stayed close to the reference line, and the first noticeable surge of the USD volatility occurred only on Wednesday. Volatility peaked against the background of the BoE MPC report, which managed both the market and the composite to jump to their maximum levels of the period. On Thursday, after the ECB president Draghi’s press conference, volatility of the Euro has grown, and EUR/USD Volatility Index reached its highest value of 5.2 points, pushing the composite up. Friday’s peaks were, for the most part, also caused by the single currency’s movements, leaving the dollar mostly unaffected by the US fundamentals.

After the previous overturbulent week, the past period was slightly more stable, and the portions of elevated volatility of the market and the US dollar were 69% and 59%. The most turbulent dollar’s components were USD/CHF and NZD/USD, which spent 66% and 67% of the time above their historical volatility level. Other parameters indicated that volatility of almost all components and composites came back to normal, leaving behind enormous values of the previous week. The only exception was the USD/CAD component, as its maximum value was significantly higher than the peaks of its peers and has exceeded even the previous week’s spike.

Currency Significance

The main boost to the dollar’s significance came from the BoC, when it cut interest rates on Wednesday and pushed the Loonie down against its peers. As the CAD composite surged to surpass all its counterparts, the dollar’s gauge was the only other one to strengthen, jumping from 0.1 to 0.3 points and subsequently holding above that level for the rest of the period. The only notable fall of the composite in the second half of the week happened on Friday, when the Euro gauge peaked to its maximum against the background of numerous PMI estimates releases, and the dollar’s significance slid from 0.5 to 0.3 points.

The dollar’s significance measure reclaimed its firmer position after the previous week’s drop, settling around 0.4 points in the end of the period. The component distributions also shifted closer to usual, as their lower tails were cut shorter and the majority of values concentrated around the medians. Only correlations with USD/CHF remained somewhat undecided, taking up a wider range of values than the other components. In total, though, despite an obvious uptrend, the dollar’s composite posted feeble results compared to its peers, falling behind other gauges in the beginning of the period and making it to the top-five only by the end of the week.