The Dollar is Facing Serious Pressure Amid the Coronavirus Crisis
As the demand for risk assets begins to recover, the pressure on the dollar is mounting, according to Action Forex.
The dollar index is currently around its June low and has lost 1.4 percent since the beginning of July against other world currencies. The British Pound has been stable recently, rising for the fifth consecutive day to 1.26300 on Thursday morning.
The rebound in demand for risk assets has been the main catalyst for the dollar. Cases in the US are surging and many fear the economy will have to rollback reopening plans and issue stay-at-home orders again. On the contrary, many countries outside the US are reporting a rebound in business activity with consumers returning to stores. Investors have been analyzing this data and looking into financial assets in these countries.
The US Federal Reserve has been increasingly pessimistic about economic recovery. The unemployment boost that many citizens have been relying on is coming to an end, businesses are not receiving new orders, and outbreaks of the novel coronavirus are being seen in several states. The Fed has also been printing trillions of dollars to increase asset purchases and support US financial markets.
This strategy has undermined the dollar as its supply increases. This may turn into a long-term trend, possibly forcing the dollar to give back six years of gains. This market will be extremely volatile in the future, especially if stay-at-home orders are enforced in major global economies again. Tokyo and cities in Australia have reported a significant resurgence of confirmed cases recently, which may turn investors back to the safety of the US dollar.