August 5 was an interesting day in the equities, precious metals, and crypto markets, with Nasdaq and gold setting new all-time highs, silver almost reaching an eight-year high, and Bitcoin surging over 4% against the dollar to break $11,750.
Let’s start with the U.S. dollar.
As MarketWatch reported earlier today, the “U.S. Dollar Index” (DXY)—which is “designed, maintained, and published by ICE (Intercontinental Exchange, Inc.)”—is “an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies”. These other currencies are EUR, GBP, JPY, CAD, SEK, and CHF.
As you can see in the chart below from TradingView, the U.S. dollar index fell around 4.16% in July (closing the month at 93.38), which was its largest monthly drop in almost 10 years. And today, DXY fell 0.57 (or 0.61%) to 92.82.
Shortly after the COVID-19 pandemic reached the U.S., everyone was in a panic and the safe haven asset of choice was U.S. Treasuries. On March 20, when the Dow fell more than 4.55%, the dollar index reached the intraday high of 102.99, which was the highest it had been since 19 December 2016.
So, why should we care about the U.S. dollar index?
MarketWatch’s report says:
“Some analysts see the subsequent unwind as merely a sign investors are more confident in the outlook for global economic growth, while others fear the greenback’s weakness could mark a step toward eroding its status as the world’s premier reserve currency.”
And crypto enthusiasts see the decline in the value of the U.S. dollar as a sign that one day the world might be ready to accept Bitcoin as the main reserve currency.
Why is the U.S. dollar falling?