Last week, the US dollar experienced its biggest weekly drop in 2022.
The weakness of the dollar last week amounted to 78.15%.
Why did the US dollar fall so much?
The dollar index was created in 1973 to measure the value of the US dollar against other major world currencies. The dollar index is compared to a basket of six foreign currencies, with each currency assigned a different weight. The six foreign currencies used to value the dollar index are the euro 58%, the Japanese yen 14%, the British pound 12%, the Canadian dollar 9%, the Swedish krona 4% and the Swiss franc 4% of the weight.
One of the components that affect the change in the value of the US dollar is the income from the purchase of treasury bonds. The dollar is very sensitive to the yield of US debt instruments such as 30-year Treasury bonds or 10-year bills. As U.S. bond yields rise, this attracts foreign investment in favorable-yielding fixed assets that require dollars to purchase, thereby raising the value of the dollar index. In turn, when yields on US bonds and bills fall, this causes a reversal as the dollar loses value as foreign investors reallocate investments in US debt instruments to other fixed assets offering favorable returns.
Last week, the Bureau of Labor Statistics reported that the October CPI rose just 7.7% YoY. This was the lowest value of the consumer price index since January of this year, when the CPI was 7.5%.
The weakness of the dollar last week amounted to 78.15%.
Why did the US dollar fall so much?
The dollar index was created in 1973 to measure the value of the US dollar against other major world currencies. The dollar index is compared to a basket of six foreign currencies, with each currency assigned a different weight. The six foreign currencies used to value the dollar index are the euro 58%, the Japanese yen 14%, the British pound 12%, the Canadian dollar 9%, the Swedish krona 4% and the Swiss franc 4% of the weight.
One of the components that affect the change in the value of the US dollar is the income from the purchase of treasury bonds. The dollar is very sensitive to the yield of US debt instruments such as 30-year Treasury bonds or 10-year bills. As US bond yields rise, this attracts foreign investment in favorable-yielding fixed assets that require dollars to purchase, thereby raising the value of the dollar index. In turn, when yields on US bonds and bills fall, this causes a reversal as the dollar loses value as foreign investors reallocate investments in US debt instruments to other fixed assets offering favorable returns.
Last week, the Bureau of Labor Statistics reported that the October CPI rose just 7.7% YoY. This was the lowest value of the consumer price index since January of this year, when the CPI was 7.5%.