It was the largest one day gain for this index since February 9th, when it jumped 1.8%. That in turn was the biggest one day rally since the month before. On January 20th the Dollar Index jumped 2.4%, so this year there have been three rallies greater than 1.7%.
In 2008 the Dollar Index rallied more than 1.7% four times.
Interestingly, looking back to the peak of the Dollar Index in July 2001, the Dollar Index has rallied 1.7% on only two other occasions. So clearly these large one-day rallies are rare, but they are now happening more frequently.
Why the greater volatility?
It could be that the dollar is approaching its death throes, and these huge erratic swings are like the wobbles of a spinning top just before running out of energy and toppling over.
Given all the 'hot money' being moved around the globe at the speed of light, these tidal waves of paper wealth no doubt also move into and out of the dollar. But the occasional bounce does not by itself improve the outlook for the dollar.
That would require a change in policy, and there is no indication any corrective change is happening at all. Consequently, we can expect the dollar to remain within the long-term downtrend clearly seen on the following chart.
The dollar began this long-term downtrend against the basket of currencies comprising the US Dollar Index over eight years ago, but the above chart is telling only half the story. While the dollar has been sinking against the euro and most other currencies, these currencies are themselves sinking with the dollar against gold.
The following chart presents a Base-100 analysis from the beginning of this decade of the dollar and the euro against gold. For comparison, it also includes the US Dollar Index.
When viewed against gold, the time-tested numéraire of all national currencies, we can see that the euro is collapsing almost as fast as the dollar, which is not too surprising.
The dollar and the euro have both caught the fatal disease that inevitably inflicts and eventually kills all fiat currencies – central bank mismanagement.
In this regard, I recommend reading Senator Bunning's critique of Ben Bernanke's first term at the Federal Reserve.
United States Senator Jim Bunning, Kentucky
So does this latest bounce in the Dollar Index mean anything? Not in my view.
The dollar is still on the same road headed to the fiat currency graveyard. So unless policymakers do an about-face and start heading in the right direction, continue to accumulate gold and silver.
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