In 2022, the U.S. dollar has been very strong, despite the global economy’s downturn and the rising inflation worldwide. 12 days ago, the U.S. Dollar Index (DXY) rallied to a high of 114.8 and since then, the index has pulled pack and a recent analysis from economists at Société Générale notes that the index will likely rally back toward the 114.8 high.
Greenback Index Starts Climbing Again After the Recent Pullback, Société Générale Economists See a ‘Prevalence of Upward Momentum’
The U.S. dollar, otherwise known as the greenback, has been a formidable foe against a myriad of fiat currencies this year. A large swathe of fiat currencies like the euro, pound, yen, yuan, and Australian and Canadian dollars have all suffered from the greenback’s strength. On September 27, the U.S. Dollar Index (DXY) tapped a high of around 114.8, a height that hasn’t been recorded since 2001. The DXY is an index that is leveraged to measure the value of the greenback against six different fiat currencies.
The basket of fiat currencies traded against the U.S. dollar consists of the European Union’s euro, the Swiss franc, the Swedish krona, the British pound, the Canadian dollar, and the Japanese yen. However, the basket of six currencies is not distributed evenly, as the euro consists of 57.6% of the basket, and the yen is the second largest component with 13.6%. The index gives traders, analysts, and economists a fair valuation of the dollar’s strength against the basket of foreign currencies.
The DXY was introduced in 1973 when U.S. president Richard Nixon removed the gold standard and the Bretton Woods Agreement dissolved. At the time, the DXY initially started with a base of 100 and the index has risen a great deal since then, reaching an all-time high in February 1985. At that time in 1985, the DXY tapped 160.41 and in order to breach the record from the latest high recorded 12 days ago, the index would have to increase by more than 39%.
Economists from the French-based financial services company Société Générale S.A. (Socgen), believe the DXY is heading back toward the 114.8 range after the recent dip. “A rebound towards 113.60 and the peak near 114.80 is not ruled out,” the Socgen economists detailed on October 7. The economists further state that a break under the 110 region would suggest a deeper pullback, but DXY is currently trading at around 112.747 on Sunday afternoon at 11 a.m. (EST).
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