Dollar strength returns in May, oil set for weekly losses

The US dollar index looks set to return to monthly strength on Friday, May 29th, after a poor performance in April. Rising anticipations of a coming rate hike from the US Federal Reserve helped boost the greenback higher, on the back of more positive economic news.

In the month of May, the dollar index looked likely to record a rise of around 2.5 per cent after a dreadful decline of 3.8 per cent in April. Over the last week, the greenback made headway against the Japanese yen to hit a 13-year high, and flirted with a one-month high when compared to the euro, which suffered from the ongoing Greek debt crisis.

On Friday, the dollar index made further gains and crept higher against a number of major crosses, such as the Canadian dollar, British pound and Swiss franc.

Data this week has overall helped reaffirm belief in a US economic recovery, after it struggled during the first three months of the year. Earlier in the week, positive consumer confidence and a fairly stable services PMI report lifted sentiment, while on Thursday better-than-expected home sales figures fuelled expectations of a coming interest rate rise from the US Federal reserve.

Comments from Fed chair Janet Yellen earlier in the week also confirmed the mood, as she said: “If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalising monetary policy.”

However, she noted that rates would return to normal very gradually, and stressed that this would only happen on confirmation of several key factors, such as a “continued improvement in labour market conditions” and confidence that inflation would reach two per cent in the medium-term.

Crude oil prices also rose on Friday, despite the recent dollar strength, as data from the US showed that inventories declined for their fourth-week running. Throughout the week prices in oil came under assault from the rising greenback, which saw Brent crude prices drop by nearly four per cent and US crude decline some two per cent.

Friday saw Brent crude rise to flirt with the $63 per barrel level while US crude broke above $58 per barrel. On a weekly basis, Brent looks set to record its second straight loss while US crude will likely break its record weekly winning streak.