Market Overview

The US Dollar is continuously reclaiming itself as the safe-haven asset as the Dollar-denominated assets like US Treasuries and other fixed income assets are considered most trusted assets in time of virus turmoil. It is no coincidence that huge additional liquidity poured by the Federal Reserve (Fed) and the US Treasury is being easily absorbed by the market that is suffering from a lack of Dollar liquidity. This is widely supported outside the US and strengthening the position of the US Dollar as a No 1 currency in the world. Investors willingly and easily acquire the American currency, and even central banks rushed to borrow from the Fed by issuing designated instruments for it.

However, since the curve of the coronavirus new cases and deaths started to wane, the risk on has increased and the US Dollar index (DXY) began to decline. The index decreased from 101 points on April 7 to 99.5 points on April 14. The situation has changed by the end of this week as International Monetary fund (IMF) released its extremely negative outlook for the world's GDP to tumble by 3 %, a highest since the Great Depression of 1930s. The curve of newly infected resumed its dramatic rise as a confirmation of a premature optimism.

In these circumstances, the demand for the Greenback is increasing. The US Dollar index climbed over 100 points. If this level can be sustained, the index may recover to its highs of April at 101 points. The Dollar may be strengthening against the Euro, the British Pound, the Japanese Yen, the Canadian dollar, the Swiss Franc and the Swedish krona, but in a different degree. Commodity currencies that are highly dependent on commodity exports like the Australian Dollar or Kiwi may be likely to lose some weight against the Greenback as well as the emerging markets currencies.

The alternative scenario suggests that the US Dollar index may consolidate at the level of 99-100 points. This may possible if no significant negative news hit the market and investors may consider that everything bad is priced in.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.