Dollar Index Extends Gains On Trade Deal Optimism

(RTTNews) - Rising optimism surrounding trade deals between the U.S. and its trading partners, and in particular the significant easing in trade tensions between the U.S. and China bolstered the U.S. dollar during the week ended May 16.

The U.S. dollar inter alia gained against the euro, British pound, the Australian dollar, the Japanese yen, the Canadian dollar, the Swedish krona and the Swiss franc. The Dollar Index recorded gains for the fourth week in a row.

The Dollar Index (DXY), a measure of the Dollar's strength against a basket of 6 currencies added 0.75 percent during the week ended May 16. The DXY which had closed at 100.34 on May 9 finished trading at 101.09 a week later. During the week, the index traded between the high of 101.98 recorded on Monday and the low of 100.27 recorded on Wednesday.

The Dollar's movements were also swayed by the economic data releases over the course of the week.

Data released by the U.S. Bureau of Labor Statistics on Tuesday had showed headline annual inflation in the U.S. unexpectedly declining to 2.3 percent in April. Markets had anticipated a steady level of 2.4 percent. The core component remained steady at 2.8 percent as expected.

Consumer price inflation on a month-on-month basis which was expected to rebound to 0.3 percent unexpectedly showed a lower reading of 0.2 percent. The core component too unexpectedly showed a lower reading of 0.2 percent as compared with the 0.3 percent that the markets had anticipated.

Data released by the U.S. Bureau of Labor Statistics on Thursday showed producer prices falling by 0.5 percent in April, versus a revised flat reading in March. Markets had anticipated an increase of 0.2 percent.

Data released by the U.S. Census Bureau on Thursday showed U.S. retail sales rising by 0.1 percent month-over-month in April, versus an upwardly revised 1.7 percent surge in March.

Amidst the dollar's strength attributed to easing trade tensions, the Euro slipped 0.75 percent against the Dollar. During the week ended May 16, the EUR/USD pair dropped to 1.1164 from 1.1248 a week earlier. The pair ranged between $1.1065 recorded on Monday and $1.1266 on Wednesday.

The week ended May 16 witnessed the pound falling 0.23 percent against the dollar amid stronger than expected GDP updates from the U.K. and progress in trade negotiations between the U.K. and the European Union. The sterling, which had closed at $1.3306 on May 9 declined to $1.3275 by May 16. The GBP/USD pair traded between a low of 1.3139 touched on Monday and a high of 1.3362 recorded on Wednesday.

The Aussie also declined against the U.S. Dollar during the week ended May 16. The AUD/USD pair traded between a low of 0.6356 touched on Monday and a high of 0.6503 recorded on Wednesday. The slippage for the pair during the week was 0.14 percent, from 0.6412 on May 9 to 0.6403 on May 16.

The Japanese yen weakened during the week ended May 16 amidst data showing a larger-than expected contraction in the Japanese economy in the first quarter. The USD/JPY pair which had closed at 145.36 on May 9, increased to 145.63 in a week's time. The pair ranged between 148.66 and 144.92 during the week.

The U.S. dollar has plunged on Monday in the backdrop of a surprise sovereign rating downgrade of the U.S. by credit rating agency Moody's. It is currently at 100.18 versus 101.09 on Friday. The EUR/USD pair has rallied to 1.1268 whereas the GBP/USD pair has increased to 1.3381.

The AUD/USD pair has strengthened to 0.6446. Amidst talks of a rate hike by the Bank of Japan, the yen has strengthened, dragging down the USD/JPY pair to 145.00.