The US Dollar Index jumped 1.7% on Friday, from 74.63 to 75.91. It was the largest one day gain for this index since February 9th, when it jumped 1.8%. That in turn was the biggest one day rally since the month before. On January 20th the Dollar Index jumped 2.4%, so this year there have been three rallies greater than 1.7%.In 2008 the Dollar Index rallied more than 1.7% four times. Interestingly, looking back to the peak of the Dollar Index in July 2001, the Dollar Index has rallied 1.7% on only two other occasions. So clearly these large one-day rallies are rare, but they are now happening more frequently. Why the greater volatility?
It could be that the dollar is approaching its death throes, and these huge erratic swings are like the wobbles of a spinning top just before running out of energy and toppling over. Given all the 'hot money' being moved around the globe at the speed of light, these tidal waves of paper wealth no doubt also move into and out of the dollar. But the occasional bounce does not by itself improve the outlook for the dollar. That would require a change in policy, and there is no indication any corrective change is happening at all. Consequently, we can expect the dollar to remain within the long-term downtrend clearly seen on the following chart.
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