I’ve found something super interesting on twitter yesterday. As I was reading news about dollar index going below 100 once again enabling a big rally in global equities, commodities like crude, gold and even, crypto has joined the party now.
Credits to Ankit madhwani on twitter, He shared something that most of the investors and traders tend to over-estimate or exaggerate when it comes to dollar index.
How long has Dollar index sustain above 100 in last 40 years?
If we look at last 40 year data, Dollar index has traded above 100 mark only for 14% of the time and has been below that for 86% of the time.
This comes as a surprising fact to me as dollar index is the global reserve currency but nearly 85% of the time, it is below 100 and there were only 3 major periods where it stayed above 100 and the longest period it stayed above 100 was 38 months between 1999-2002 when euro was introduced, there was 9/11 attack and this cycle is the shortest with only 16 months.
Time
Duration (days)
Duration (months)
01-01-1985 to 01-01-1987
730
24
05-01-1987 to 07-01-1987
61
2
11-01-1999 to 12-01-2002
1126
38
11-01-2016 to 12-01-2016
30
1
04-01-2022 to 13-07-2023
465
16
Co-relation between Dollar index and other asset classes
Dollar falling means more inflows to equities and also increase in relative value of commodities and precious metals like Gold.
This is one of the key indicators to track but it only needs to be seen in context with what other indicators are doing as well.
What is the significance of this threshold 100 though?
We will get a different picture if we use a different threshold (say 120).
In the context of the Dollar Index,
what is the significance of the threshold of 100?
The index was established shortly after the Bretton Woods Agreement dissolved in 1973 with a base of 100, and values since then are relative to this base
IIUC, the threshold of 100 is the relative-value of the USD compared to other major global currencies in 1973.
So, am not quite sure what’s the insight we gain
by studying how often the dollar-index was below 100
i.e. how often the current US-dollar was weaker than a US-dollar in 1973.
After Nixon took us gold standard, him and his buddy Kissinger went to middle East to make deal with Saudis to sell oil ok dollars in exchange for military cooperation and protection.
Somewhere yom Kippur war happened and Saudis put oil embargo and that sure did have a impact on dollar.
I remember this news well though. In this entire f**k up of middle East over oil , military industrial complex . Saddam Hussein was selling oil in Euros rather than dollars. Back at that time I believe euro was trading higher than dollar or something. It was having an impact. Which is why US invaded Iraq. I am pretty sure if we map the middle East events or events that involved oil, the dollar index would make sense.
What i did not get (still do not get) is
why bother / study how often the Dollar Index has been above 100 or below 100 ?
So, most of the time in the past 5 decades,
the US Dollar has been weaker than it was in 1973
compared to 6 other global currencies (but mostly the Euro),
when the baseline of 100 was defined.
Somehow, i still feel there’s something OP wanted to highlight and i missed it. (or maybe i am overthinking this. )
)