The US dollar index, which tracks the greenback’s performance against the currencies of America’s major trading partners, slid by almost 4% in April – its worst month in four years. The first quarter’s poor GDP increase of just 0.25% unsettled investors. Expectations that the first interest-rate hike in almost a decade would happen in 2015 began to fade as a result, reducing the appeal of the dollar.
Speculators responded by unwinding bets that the dollar would rise, amplifying the countertrend.
Still, last week’s employment data support the idea that the weak first quarter was due to an unusually harsh winter; the unemployment rate fell to a seven-year low of 5.4%.
Rates are now expected to rise in the autumn, while monetary policy remains very loose in Europe and Japan, favouring the dollar. So the dip is likely to be a correction in a long-term bull market, says Morgan Stanley.