Fundamental analysis of the US dollar
Why does the US dollar index not fall?
While we have seen a steady decline in the US dollar index over the past ten months, last week's fluctuations have shown how the US dollar will strengthen. Investors are flocking to US Treasury securities as volatility intensifies and risk aversion flows across markets. Last week, the VIX index recorded its highest overnight jump in three years. The index reflects the fear of US stock market investors.
Risk aversion supported Treasury bills and the US dollar. Also, from the beginning of 2021, we are witnessing the formation of a price floor in the US dollar index. The US dollar index is looking for a price floor as the Dow Jones, S&P 500 and NASDAQ stock indices have risen during this period. The reason for the US dollar index floor is changes in the rate of return on treasury bonds. The market has long focused on changes in Treasury bond yields. Biden's new financial package has boosted Treasury yields. Rising Treasury yields and the Federal Reserve's gradual exit from expansionary monetary policy could benefit the US dollar. That is why the US dollar index has been able to maintain its position for now.
It is unclear whether Biden's $ 1.9 trillion financial package will be approved by mid-March. The size of this package may also change. This means that investors may be disappointed in the medium term. Meanwhile, the entry of micro-investors into the shares of companies that have recently been sold by mutual funds (Short Sell or borrowing sales) has caused a heavy loss to investment funds, which may cause them to go bankrupt. Bankruptcy of large investment funds could turn into a new financial crisis in the United States. This week, US dollar traders need to look at US economic indicators in addition to GME and AMC stock fluctuations.