The US dollar plunged sharply on Thursday and continued the downside momentum in Friday trading as investors are showing concerns over economic recovery and the second federal stimulus package. The greenback has already lost 10% of value since the beginning of the year. It has been trading around the lowest level in two years over the past few weeks.
The market analysts have also been blaming equity market resilience for the drop in greenback value over the last couple of months.
In addition to the equity market rally, economic problems are among the biggest headwinds for the US dollar.
The US dollar has also failed to gain upside momentum despite better-than-expected U.S. jobless claims data. Initial claims stood around 963,000 compared to analysts estimate for over 1.1 million. This represents an unemployment benefits drop of 228,000 for the week ended Aug. 8.
The fading hopes over the second stimulus package are likely to strongly impact investor’s sentiments in the short-term.
“The stalemate over the stimulus package is troubling,” said Amo Sahota, executive director at currency advisory firm Klarity FX in San Francisco. “Sticking more band-aid over it, which is what the administration is trying to do right now, is not enduring.”
President Donald Trump said a deal is “not going to happen” and he accused congressional Democrats of stopping the aid package.
On the other hand, the market analysts claim that weaknesses in the dollar indicate positive risk sentiment as the investors are moving towards currencies and assets that are generating better returns in the current market environment.
The euro continues to show strength against economic challenges. The value of the euro grew by almost 6% since the beginning of July. Analysts say better economic and virus-related management from European countries helped the euro beat the US dollar over the past few months.