The strength in the U.S. dollar turned from being a symptom of the commodity sell-off to a major driving force on Thursday, and at the heart of that shift are fears over slower world growth.
The beginning of the week was dominated by fears China and India will have to get more aggressive on interest rates, screwing down their economy and sacrificing more growth than expected in their so-far vain attempts to kill off stubborn inflation.
From Tuesday that caused a gradual sell-off in commodities, as seen in the fall of the Australian dollar , which is a commodity currency. The sell-off in the Aussie accelerated through the week.
Thursday's dramatic twist is the sudden weakening of the euro against the dollar as European Central Bank President Jean-Claude Trichet failed to signal higher interest rates for the euro zone next month.
It's often been said that the dollar was weak by default; the most ugly of the world's currencies. But this week the prospect of slower growth around of the rest of the world is making the euro and the Aussie a little more ugly and the dollar more attractive.
The sudden breakout Thursday of the Dollar Index against a basket of currencies instantly makes commodities priced in dollars worth less than before. In the case of a speculative bubble such as silver , it can be the straw that breaks the camel's back.
When Trichet was asked Thursday about the strength of the euro, he replied by very deliberately quoting statements from Tim Geithner from April 26 and Ben Bernanke on April 27 in support of their "strong dollar" policy.
Trading desks may have interpreted Trichet's words as an implicit challenge to Geithner and Bernanke to act to do something in support of the dollar, such as talking about raising rates.