By David Wagner
The u.s. dollar started the month of August by a rebound yesterday after suffering its worst monthly drop since a little less than ten years old in July, but it is still far to cancel the bearish view that has dominated for several weeks.
And, according to some analysts, the decline is likely to quickly recover and grow to new lows.
The Dollar Index, which measures the greenback against a basket of six other currencies, fell by 4.2% in July, its largest drop in a month since September 2010. He had also joined a Friday morning a low of 2 years.
Steven Barrow, head of strategy G-10 at Standard Bank, pointed out that the weakness of the us dollar compared to the currencies of developed comes at a time when the global uncertainty around the pandemic COVID-19 increases, which is unusual, since the Dollar tends to behave “a little better” compared to its counterparts in the developed economies during a crisis, thanks to its safe haven status he said in a note Friday.
Barrow was concerned about the fact that the combination of economic uncertainty and political importance in the context of the pandemic COVID-19, and at the approach of the November presidential election could be a “risk of crash for the US Dollar.
Barrow argued that the rate cuts and other easing measures from the federal Reserve and the falling yields of Treasury at historically low levels or close to them have considerably reduced the premium rates in u.s. relative to other currencies “safe”.
It underlined the quasi-freezing of the us Treasury market at the height of the crisis of the coronavirus at the beginning of the year, which could make operators and investors reluctant to head towards the Good of the Treasures in the event of another major event risk.
He also pointed to the risk of the elections, recalling that the president, Donald Trump has raised the issue of the postponement of the vote last Thursday, citing the potential for fraud around voting ballots by correspondence.
And although it is practically certain that the vote will take place on 3 November, the suggestion of Trump “is only a further indication that the election will not play as well as we’re used to in a developed country”, according to Barrow. “And, if [Trump] is refusing to leave office after a defeat – disputed -, it could really undermine the credibility of the United States on a global scale.”
In the end, Barrow summed up in believing that it is the trust that will determine the fate of the Dollar in the medium term :
“If the trust has disappeared in the american economy, the development of policies, the credibility of the elections and more, so the dollar could collapse, at least compared to other major currencies. ”