US Dollar Index ("DXY")
- DXY is a measurement of the value US dollar relative to a basket of foreign currencies.
- It consist of EUR (57.6%), JPY (13.6%), GBP (9.1%), CAD (9.1%), SEK (4.2%) and CHF (3.6%).
Federal Funds Rate ("I")
- There are 7 time of Federal Funds Rate hike since 2017.
*Mar 15, 2017 - 1.00
*Jun 14, 2017 - 1.25
*Dec 13, 2017 - 1.50
*Mar 21, 2018 - 1.75
*Jun 13, 2018 - 2.00
*Sep 26, 2018 - 2.25
*Dec 19, 2018 - 2.50
- Short Term Approach
*DXY was retrench after announcement of Federal Funds Rate hiked (Blue Arrow Sign).
- Long Term Approach
*Before Federal Funds Rate @ 1.75%, DXY was bearish trend against 6 major currencies. *After Federal Funds Rate @ 1.75% on 21.03.2018, DXY enter bullish trend with completion of technical Bottom-W pattern.
Summary of Current Interest Rate
- 19 Dec 2018
*FOMC announced Federal Interest Rate increase from 2.25% to 2.50%
*DXY retrenched by 0.61% from 96.99 to 96.17 which proves DXY will have a short term retrenchment after FOMC announcement.
- 20 Dec 2018
* Bank of Japan (BOJ) announced and maintains interest rate -0.10%
* Bank of England (BOE) announced and maintains interest rate 0.75%
* DXY opened low and closed high @ 96.95 (+0.58%
- When Federal Funds Rate achieved 1.75%, it is higher than 6 major country interest rate as per table above.
- Retail funds and Institutional funds will flow to United Stated to enjoy higher interest income compare to other country with no risks.
Conclusion
- Central Bank Interest rate decision will have big impact on appreciation/depreciation of currency.
- Ultimately, markets will channel funds to higher interest rate country to earn interest income.
Source:-
- https://www.global-rates.com/interest-rates/central-banks/central-banks.aspx
- https://en.wikipedia.org/wiki/U.S._Dollar_Index
- https://www.investopedia.com/terms/u/usdx.asp
- https://en.wikipedia.org/wiki/Federal_funds_rate
- https://tradingeconomics.com/united-kingdom/interest-rate
- https://tradingeconomics.com/japan/interest-rate