Depending on which index you look at, King Dollar either gave back ground in August's market turmoil or continued to grind higher.
The most commonly cited U.S. dollar index, the DXY, retreated over the course of the month, while the Federal Reserve's broad trade-weighted dollar index rose to its highest level since September 2003.
The euro and the yen account for more than a 70 percent weighting in the DXY, while the broad trade-weighted dollar index, as the name suggests, tracks the greenback's value relative to a greater array of foreign currencies.
The yen and euro both gained, while stock markets tumbled, as investors unwound the popular bets made against these currencies, which also benefited from safe-haven flows.
"Fed rate expectations adjusted more than [European Central Bank] and [Bank of Japan] QE expectations (markets delayed Fed hikes but didn’t price-in more ECB/BoJ easing)," wrote researchers at Deutsche Bank, who expect the U.S. dollar to recoup its recent losses against those currencies over the next six months.
The Chinese yuan, which is included in the trade-weighted dollar index but not the DXY, was devalued during the month. These two factors are at the heart of the gap between the two dollar indexes in August.
And this divergence, according to Deutsche, reinforces that the U.S. dollar "upcycle" that began in 2011 is "rotating, not ending: from developed markets, to commodity foreign exchange, and now to China and Asia foreign exchange."
In other words, the early innings of the U.S. dollar's rally were fueled by gains relative to the euro from 2011 until mid-2012, as well as a surge vs. the yen, which started soon after:
In the second half of 2014, the U.S. dollar improved markedly relative to such commodity currencies as the Australian dollar and the Canadian loonie:
Now Deutsche Bank sees the greenback's strength against Asian currencies, a group which includes the Chinese yuan, South Korean won, and Singapore dollar, as evidence of the rotation to a fresh avenue for U.S. dollar gains:
Meanwhile, Goldman Sachs's Aleksandar Timcenko and Kamakshya Trivedi have pointed out that the broad gains made by the U.S. dollar were much more a function of weakness in the other part of the currency pairs.
Timcenko and Trivedi looked at emerging market currencies more generally, seeking to isolate how much of those foreign exchange moves over the past month could be attributed only to a U.S. dollar factor.
They found that "the degree of focus on the USD factor in emerging market foreign exchange markets has waned substantially over the past month, and is near the lowest levels of the year."
Issues specific to emerging markets, they concluded, have been in the driving seat for the past month.
Alone, the chart "does not identify what those EM-specific influences are but it is consistent with our view that the ongoing EM foreign exchange weakness is not simply the by-product of a potential Fed lift-off," wrote Timcenko and Trivedi. "EM foreign exchange adjustment is necessary to help address EM imbalances and to absorb the terms-of-trade shifts wrought by the large shifts in commodity prices."
However, Goldman also cautioned that if the Fed refrains from raising rates in September, emerging market currencies would likely earn a reprieve from further damage in the short term.