The US dollar is taking a beating on Wall Street, measured by a popular index.
The blame is partly on the revival of the EURUSD euro,
as European leaders forged a historic fiscal pact to lift the eurozone economy out of the coronavirus pandemic that has brought much of the world to its knees; But either way, the outlook for the greenback has some experts questioning its long-term outlook.
“The dollar is very vulnerable now,” Boris Schlossberg, managing director of the G-10’s currency strategy at BK Asset Management, told MarketWatch in an interview Tuesday afternoon.
Schlossberg said, “Mass spending and the general lack of attraction for the US dollar could be … more of a threat to the dollar than people appreciate.”
On Tuesday, the dollar lost 0.7% to 95,139, hovering at its lowest level since March, according to FactSet data, according to the DXY index of the US dollar ICE,
A measure of the dollar against half a dozen currency pairs, including the euro, which represents 57.6% of the indicator.
In the past three months, the dollar has been hit, falling 5.1%, and so far has lost 2.3% in July.
Meanwhile, the euro, flirting with parity against the dollar near the start of the pandemic earlier this year, has been in a ruin against the dollar, the last time it changed hands at $ 1.1529, an increase of 0.7 % on Tuesday and gained 5.8% over it in the past three months, with much of its recent rise to its highest level against the dollar since January 2019 in the past 30 days.
Some analysts argue that the recent weakness of the dollar is understandable due to its recovery during the apex of the coronavirus public health crisis, underscoring the currency’s position in global financial markets as an asset haven in uncertain times.
The historic European Union pact on Tuesday, however, ushered in a sense of greater cohesion around the EU, sometimes frantic. The 27-member bloc agreed on a budget of 1.8 trillion euros (2.06 trillion dollars) and a rescue spending plan, which features the issuance of common bonds, highlighting the group’s willingness to coordinate economic efforts, something that some market participants were skeptical of the pandemic.
Currency strategist BK Assset said the coronavirus recovery package forged by Europe created “positive flows to the euro and negative flows to the dollar.”
UBS analysts see the dollar’s bumps continue for the rest of the year by forecasting that the euro will hit $ 1.17 by the end of the year.
“We don’t expect the recent increase in COVID-19 infections to lead
to the reimposition of national blockades, so we expect world economic growth to continue to recover, “the UBS analyst wrote in a research note on Monday.
“As a result, we expect demand for safe haven for the US currency, which was evident in the early stages of the pandemic, to decrease,” added UBS analysts.
Analysts also noted that appetite for dollars has declined and the use of so-called swap lines by foreign central banks has continued to decline after helping quench an intense fight for greenbacks, as the pandemic initially stirred financial markets.
UBS says the Federal Reserve’s historically aggressive and unprecedented tactic in trying to provide monetary stimulus to the failing U.S. economy during the height of the pandemic has reduced benchmark bonds, also a factor that is affecting appetite for dollars because Traders often park their funds in currencies that offer high relative returns.
Benchmark 10-Year Treasury Yield TMUBMUSD10Y,
for example, it was moving around a super low level at 0.61%.
“The interest rate advantage that supported the US dollar in recent years
has been eroded by the fact that the Fed has been more aggressive
than other major central banks in monetary easing, “wrote UBS.
Schlossberg said he expected that dynamic to be amplified by the probability it yields for the German TMBMKDE-10Y bonds,
it would rise, undermining the relative attractiveness of bonds against comparable government debt. German 10-year bonds, also known as bunds, were yielding negative -0.46%.
As German rates rise from less negative levels, demand for euros could increase, the thought continues.
UBS says uncertainty about the outcome of the US presidential election in November may also account for the weakening of money, with former Vice President Joe Biden leading current President Donald Trump in national polls by a relatively wide margin. .
The perception that Europe may have more control over the decline in the coronavirus epidemic compared to the US, was also seen as negative for the dollar compared to rivals like the euro.
The hegemony of the dollar as the world’s reserve currency, once seen as irreproachable, has also been more frequently questioned by respected experts.
Stephen Roach, a principal investigator at Yale University and former president of Morgan Stanley Asia, told MarketWatch last month that his forecast of a sharp deterioration in the US dollar could be a very short-term phenomenon, not an event looming. distance.
“I think it is something that happens sooner rather than later,” the economist told MarketWatch during an interview in late June.
Schlossberg and Roach point out that the US has accumulated massive trillion-dollar deficits to address the coronavirus as a factor weighing on the dollar in the long term.
Tuesday’s dollar slide came when the market ended mixed, with the DIA Jones Industrial Average DJIA,
and the S&P 500 SPX index,
ending with modest gains while the Nasdaq Composite Index COMP,
ended down 0.8%.
The dollar has also lost ground against the GBPUSD,
with the currency changing hands at $ 1.2733 against the dollar, 0.6% more. The Australian dollar also strengthened against the US unit, changing hands at $ 0.7124, 1.6% higher than Tuesday, around its highest levels compared to the dollar since December 2018.
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