The Dollar bounce but likely to weaken

By Peter Nurse

Investing.com — The dollar has posted slight gains in european exchanges at the beginning of the day Monday, but the general trend remains to the weakness of the greenback, in a context of growing concern about the slowdown of the u.s. economic recovery following the pandemic of sars coronavirus.

Has 09h55, the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.3% to 93,550, bouncing from the lowest level in two years 92,523 reached at the end of last week.

USD/JPY has increased 0.1% 105,98, GBP/USD fell 0.1% to 1,3070, while EUR/USD fell 0.2% to 1,1755, more than a penny cheaper than the earlier of two years reached last Friday to 1,1908.

Although the dollar has increased on Monday, this increase is widely seen as a response technique to the significant losses recorded recently, mainly in relation to the euro, and those gains could quickly crumble.

“The dollar is heading towards the month of August under pressure, after having experienced its sharpest monthly drop in three years,” said analysts at ING (AS:INGA), in a research note.

“The nature of the sale suggests that a different dynamic is in play. It is not a question of the downside mild dollar that we had envisaged, but rather a decline seems to be due to the introduction of a new risk premium on the markets for american assets, following the resurgence of cases of Covid-19 in the United States, and perhaps also to the fact that the presidential elections in November are beginning to make their effect,” added ING.

The United States reported more than 4.6 million cases of Covid-19, and are now in a new phase of the new outbreak of coronavirus, with infections “extraordinarily common” in rural areas as well as in the cities, have declared Sunday the experts in coronavirus from the White House.

During this time, the Congress is still in deadlock as regards the next series of measures of economic aid, which means that tens of millions of Americans have now lost an additional $ 600 per week unemployment federal.

The eyes will look to the PMI data us manufacturing for the month of July, at 16: 00, to see if there is an impact of the second wave of the epidemic Covid-19.

On Friday, Fitch has placed the bonds of the u.s. government in a negative outlook, citing concerns over the deterioration in public finances of the country, but the demand for Treasury bills is still strong in these turbulent times. Bond yields have fallen to their lowest level since the market turbulence caused by the pandemic in march.

“The decline of the dollar is expected to continue. The real interest rates in the u.s. are declining even as the country has a large current-account deficits, a situation that we had not known for a long time,” said Minori Uchida, chief analyst of the foreign currency at the bank, MUFG, in a Reuters report.

 

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