The hottest trade of the past two months has been a surprising one: Going long the U.S. dollar against other currencies. And the recent dollar strength appears to have had a profoundly negative impact on commodity prices.
Since the end of June, the U.S. Dollar Index (which compares the dollar to a basket of other currencies) has risen 3.5 percent, bringing the index to a 52-week high. And while the weakness in the widely watched euro has certainly contributed to the move, the dollar has also shown considerable strength against currencies like the British pound, the Canadian dollar and the Japanese yen. On Tuesday alone, the dollar rose 0.7 percent against the yen—a serious move for a major currency.
Many expect the European Central Bank to announce easing measures this week, and this expectation is likely contributing to euro weakness and thus dollar strength. But because the move is so broad-based, it can’t all be credited to ECB President Mario Draghi.