The dollar falls in the Forex market on Monday, after reaching its lowest level since September 2018. The deterioration of relations between the United States and China and concerns about the US economy motivated investors to take refuge in the yen and the Swiss franc.
US Secretary of State Mike Pompeo said Washington and its allies must use “more creative ways” to get the Chinese Communist Party to change its ways.
As domestic economic concerns surpassed its role as a safe-haven currency, the dollar index fell overnight, stabilizing in the early hours of the morning, and then continued its decline. At 10:58 GMT, the dollar index was at 93.77, down 0.6%, Reuters reports.
The dollar, the big loser
With COVID-19 infections showing no signs of slowing down in the US, investors doubt a rapid economic recovery. Nearly a quarter of global total coronavirus deaths have been in the United States, where jobless claims unexpectedly increased last week.
Some of the previous steps to mitigate the financial impact, such as enhanced unemployment benefits, will expire this month and Congress has yet to agree on new support.
“In the past, the dollar was able to benefit from the trade conflict between the United States and China. That is no longer the case now. What is at stake is no longer just trade. The United States could be exceeding the brand with its policy towards China, as well as with its measures against some European countries. ” Commerzbank analysts Ulrich Leuchtmann and Hao Zhou wrote.
“If the dominance of the dollar in international trade and capital markets were to decrease as a result, the weakness of the USD that we are seeing right now would only be a very diluted flavor of what is to come,” they added.
The Federal Reserve meets this Tuesday and Wednesday. It could confirm recent clues about the benefits of an average inflation target, which would allow rates to stay lower for longer.
Forex: The Yen and the Swiss Franc the winners of the session
The weak dollar has caused investors to move to other safe haven currencies such as the Japanese yen and the Swiss franc.
The Swiss franc peaked at five years against the US dollar. until 0.9167 during the night. The dollar lost 0.8% against the yen, which strengthened to a four-month high of 105.26.
“In a general dollar selling environment, the yen is benefiting as a safe-haven currencySaid Neil Jones, head of currency sales at Mizuho, adding that month-end flows were also playing a role.
“The markets are potentially looking for risk-averse currencies, and this appears to be a discretionary switch from the dollar to the yen and the Swiss franc,” he said.
The Euro maintains its upward trend
The euro continued its rise after European Union leaders agreed on a € 750bn fiscal stimulus plan last week.
But Fabio Panetta, board member of the European Central Bank, warned that the danger to the euro zone economy has not yet ended.
The euro hit new highs of $ 1.1729, 0.6% higher on the day and its highest level since September 2018. Jones, of Mizuho, said the recovery was due to a significant short position on the euro that was looming. unwinding.
Finally, will the dollar remain weak against the main world currencies? Let us know what you think in the comment box.
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