The Dollar is strengthening, but the trend is still downward

By Peter Nurse

The dollar has slightly increased in the beginning of the european session on Wednesday, but the overall trend is one of weakness, in particular against the single currency after the agreement to relaunch the EU has improved the sentiment towards the euro.

At 10: 25 am, EUR/USD was down 0.1% at 1,1520, after having reached 1,1547$ earlier in asian trading, its highest level since January of 2019.

The dollar index, which tracks the greenback against a basket of six other currencies, rose 0.2% to 95,293, after having reached a low of 95,007 during the night, a level not seen since early march.

The USD/JPY was up 0.2% at 106,95, the AUD/USD is unchanged at 0,7127, close to the highest level since last April, while the GBP/USD was down 0.6% to 1,2652.

This follows the agreement of european Union leaders on a recovery plan substantial to help the countries of the region to rebuild their economies, the damage caused by the pandemic Covid-19.

At the same time, one has the impression that the u.s. lawmakers have struggled to find a consensus on the next round of stimulus measures aimed at boosting consumers and american businesses.

“You could say that the dollar is lower due to a risk-taking,” said Shane Oliver, head of investment strategy and chief economist at AMP (OTC:AMLTF) Capital Investors, in a Reuters report.

“Ironically, the dollar’s weakness has been exacerbated by concerns that the United States are not as much as the Europeans in terms of recovery”.

The agreement of the european summit is quite significant, noted the analysts of ING (AS:INGA), in a research note, because the emergence of the grants indicates the solidarity, while the common bonds indicate the integration.

“With the good news that is specific to the euro, which are now largely in the price, we expect that the next step of the increase of the EUR/USD comes from the side of the dollar,” said ING, “with the downward trend of the american currency caused by a combination of flexible monetary policy from the federal Reserve (note that the dollar has lost its key advantage, which was maintained supported in previous years – the interest rate differential is significant), the double deficit and the uncertainty of the u.s. presidential elections”.

The bank expects EUR/USD to reach 1.20 m by the end of the year.

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