US Dollar Slump on Investors Move Towards Riskier Currencies
The US dollar fell back this week after generating some gains last week as investors sentiments soared about the risker currencies amid hopes for economic recovery and coronavirus vaccine. The trader’s concerns about the downbeat Federal Reserve’s stance also negatively impacted the dollar value this week.
The market analysts are expecting the Fed to keep interest rates in zero range while the strategy of higher lending could push the inflation rate above the targeted 2% level.
“The big story for would be a 2023 rate hike on the dots,” said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York. “What we’d hope to see is that the Fed projects no rate hikes for 2023. If they put a rate hike in there, equities and commodities would sell-off and the dollar would rally,” he added.
Riskier currencies, on the other hand, soared sharply against the US dollar. Chinese Yaun jumped to the highest level in the last sixteen months while the euro is also hovering around two years high of $1.20 level. Chinese economic data has also been pointing stronger economic recovery for the second-largest economy.
Chinese retail sales increased for the first time in August since the pandemic hit the country while the industrial activity grew almost 5.6% from the past year period. European economic recovery is also faster than expectations.
The ZEW economic sentiment survey suggested that investor sentiment jumped sharply in the German economy this month, which is a positive indicator for the entire European Union.
The US dollar index slid to two weeks low of 92.910 on Tuesday but the index reversed losses today. It is trading around 93 levels on Wednesday. The US dollar index has hit a one-month high of 93.664 last Wednesday.
“What’s driving both equities and the dollar is a combination of ample liquidity provision by the Fed and part of it is rising optimism for a vaccine and the global recovery,” said BMO’s Anderson.