The dollar index may be still, but USD far from it
June 25 (Reuters) -The dollar index may be still, but USD is far from it because this index, which is compiled of few currencies, is heavily weighted toward the euro.
EUR/USD has been stuck on familiar ground since the beginning of 2023 and, because the euro constitutes 58% of the index, it may appear that the dollar isn't moving.
This is far from the case with the dollar approaching record highs versus a growing number of emerging currencies including China's high-profile yuan, India's rupee, and Turkish lira. The dollar has risen strongly versus many other currencies.
There are caveats as a preference for carry trades has underpinned some currencies such as Mexico's peso. Even peso's run of better fortune follows a period of extreme weakness, and it's a correction of this extreme that has largely cast Mexico's currency in a bright light this year.
From a long-term perspective, the dollar is still very strong versus the peso, rand and other currencies such as Hungary's forint - preferred in carry trades this year.
The main concern though is the extreme weakness of many currencies that would usually happen only during a crisis, because current drops unfolding under normal conditions are more likely to continue.
If so, an already strong dollar could rise much further with a host of emerging currencies dropping into uncharted territory where they may slide faster.
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USD index flatlining https://tmsnrt.rs/3xyTxGg
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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