US Dollar Cools Off from Eight Week High as Equities Gain Momentum
US dollar rally faded in the Friday trade as global stock markets started reversing losses despite increasing coronavirus infections and concerns over economic recovery. The USD index, which tracks the US dollar against the basket of six currencies, fell back to 94.40 level after hitting two months high of 94.60 level in Thursday trading.
European and US stock markets have reported gains in Thursday trading and the markets extended upside momentum in Friday trading.
Increasing unemployment claims added to bearish sentiments. The data shows that unemployment claims hit 870000 level last week, up from analysts’ consensus for 850000 claims.
In addition, economists have started lowering their forecasts for the US economy. Goldman Sachs has dropped fourth-quarter GDP growth forecast to 3% from earlier economic growth outlook for 6%.
“We have seen lately the dollar gaining as risk assets are sold off. We need to see whether this will continue beyond the end of this month,” said Yukio Ishizuki, senior strategist at Daiwa Securities.
On the other hand, the Gold prices fell to the lowest level in two months amid the strengthening US dollar. A stronger dollar makes the yellow metal expensive for buyers.
“Gold can’t shake off this dollar dominance that is reverberating across all asset classes” said Edward Moya, a senior market analyst at OANDA.
Euro has also lost momentum against the dollar. This is because European economic activity could be negatively impacted by increasing virus infections.
Several European countries are planning to impose restrictions on bars, pubs, and restaurants to avoid the risk of virus spread. The euro is currently trading around $1.1671 after trading around a two-month low of $1.16265 on Thursday.
The British Pound regained some momentum after the government announced a scaled-back job support program for workers that are badly hit by the pandemic. The Pound has hit two months low against the US dollar on Wednesday.