Dollar Index Approaches Three-Year High

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Dollar index, which measures the value of the greenback against a basket of six major currencies, surged to levels not seen since July 2010. The dollar’s strength was due to speculations that the Federal Reserve may pull back its $85 billion monetary stimulus program sooner than expected.

Dollar Index Approaches Three-Year High

Consumer Sentiments Data & Euro Helped Dollar

The greenback got another push from the falling euro, which declined today to six week lows amid expectations that the ECB may cut the deposit rate to negative territory. It will make holding the single currency unattractive for investors. The dollar index surged to 84.214, its highest level since July 2010. Against the euro, it was up 0.4 percent to $1.2814.

The dollar was also helped by data showing that consumer sentiments in the United States rose in early May to their highest level in over five years. It indicates that Americans are optimistic about the economic and financial prospects of their country. Against the yen, it rose to 103.09, a level not touched since October 2008. The greenback gained against sterling. Traders sold the British currency amid concerns that the European recession will drag on British economy. The GDP of Eurozone has been declining for straight six quarters.

The dollar has risen at an annualized rate of 25 percent this year so far. It has now become the safe haven currency as central banks all over the world continue to print unlimited about of cash to boost their economies. On April 4, the Bank of Japan announced it would infuse $1.4 trillion into the Japanese economy over the next two years to spur the economic growth and beat the two-decade long deflation. So to speak, the strong dollar is a function of other countries diluting their currencies more rapidly.

However, a strong dollar negatively affects American exporters. Countries importing goods from the United States usually pay in their local currency which, when converted to the U.S. dollar, results into a smaller sum if the dollar is strong against that currency.

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