The dollar is stronger than many may think
The dollar is stronger than many may think when considered on a trade-weighted basis.
The characterization of the dollar’s weakness is primarily due to the strength of the euroand sterling.
Since the end of March, the chart of the Bank of England’s trade-weighted index (TWI) shows a peak of 105.20 on April, subsequently falling back to 103.90 within eight days.
The dollar TWI is currently at 104.90 after averaging 102.20 last year. Through April of this year it has averaged almost 104.60.
Since the end of March the dollar has strengthened against the currencies of its four largest trading partners: Canada, China, Mexico and Japan.
The Canadian dollar is down 2.8%, the yen down nearly 1%, the yuan off 0.2% and the Mexican peso down almost 2.5%.
Sterling is up 3.7% and the euro up 2.4% over the same period.
Since the end of March, the gross short sterling position has fallen by 3,500 contracts to 135,000, while gross longs have grown by almost 20,000 contracts to 54,300.
The euro has been underpinned by a growing consensus that the European Central Bank is set to adjust its forward guidance.
The single currency has also seen an 8.6% rally against the yen since mid-April.