The dollar extended its losses against the yen and the euro after steep falls in the Chinese equity markets added to fears that the world’s second largest economy is slowing and added to doubts over how soon the Federal Reserve might hike interest rates for the first time in close to seven years. It is imperative to state that the dollar has come under pressure ever since the People’s Bank of China devalued its currency early last week sparking fears that the economy might be slowing at a faster rate than earlier expected.
Many believe that the dollar came under pressure on the back of mounting uncertainty over the global growth outlook and the subdued US inflation outlook has prompted investors to push back expectations for an initial rate hike by the Federal Reserve by as early as September this year. The dollar index which measures the performance of the dollar against all the other major currencies was lower by close to 1 percent during the trading session today. Many traders believe that if the Federal Reserve does hike interest rates in the near future it could spark a huge rally in the dollar which would be seen as a huge negative for dollar denominated currencies like gold and crude.
When looking at the daily charts for the dollar index, the greenback has been in a strong uptrend since the beginning of the year and has broken above previous resistance levels which is being seen as a huge positive. The momentum indicators for the dollar index have given a sell signal on the price volume action seen over the last couple of days which is indicative of the shift of momentum towards the sell side. The dollar index currently trades above all important daily moving averages which is a bullish sign.