The US dollar declined sharply against a basket of trade-weighted currencies this week, falling from 12-year highs after a lukewarm Federal Reserve policy statement suggested interest rates would rise much more slowly than previously expected.
The dollar index declined 1.5 percent to 97.80 on Friday, extending its weekly loss to 2.2 percent .The index had surpassed 100 last week, a rate deemed fair value by market analysts. The dollar experienced triple-digit losses Wednesday afternoon following the Federal Open Market Committee rate statement and economic projections. It would regain most of its losses on Thursday before closing the week on the downside.
The EURUSD experienced an especially volatile week. The pair briefly surpassed 1.10 on Wednesday before oscillating between 1.06 and 1.09 toward the end of the week. The pair ended the week at 1.0820, advancing more than 300 pips.
A slumping dollar helped shore up riskier assets such as equities, which experienced a strong week overall. Global stocks posted their best week in nearly two years, surging more than 3 percent, according to the MSCI All-Country World Index. The tech-heavy Nasdaq Composite nearly broke its dot-com bubble high, closing the week at 5,026.42. The Dow Jones Industrial Average experienced triple-digit growth on Friday, closing at 18,127.65.
Global crude prices also received a lift on Friday. Brent for May delivery closed above $55 a barrel, advancing more than 1.6 percent. US crude jumped 4 percent to close above $46 a barrel.
Despite its recent volatility, the outlook on the dollar remains highly bullish. The dollar is experiencing its strongest bull market in decades, having advanced a staggering 23 percent since July. Diverging monetary policies between the United States and its advanced industrialized peers will continue to support the greenback.
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About a dozen central banks have opted to ease monetary policy this year in response to declining consumer prices. While the US Fed signaled this week it would not rush to raise interest rates, it will probably be the only major central bank to begin normalizing monetary policy in 2015.
The Fed’s first rate adjustment will likely occur in September, according to analysts, leaving enough room for one more rate adjustment before year’s end.
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