US Dollar Weakens as Risk Appetite Surges

Ibeth Rivero

In summary, according to the perception of the vast majority of them the future of the currency depends on whether there is going to be another coronavirus outbreak this year. If there is one that would push the dollar performance higher as it would fuel the appetite for safe-havens.

Last week the US dollar lost ground against a bundle of its main competitors, falling 0.27 percent. In contrast, the US equity markets were favored last week, as the S&P 500 gained 4.02 percent, while the Dow Jones industrial average advanced 3.25 percent, followed by the Nasdaq 100 which increased 5 percent.

Moderate hopes for economic recovery dominated the market last week, fueling the appetite for risk and favoring relatively riskier currencies and assets. Adding to the enthusiasm, Pfizer’s recent announcements increased the hopes for the release of a Covid-19 vaccine, which at the moment has infected around 2,935,993 individuals and has killed 132,318 of them in the United States, turning the country in the most affected of the world.

In terms of the economic calendar, the markets learned several key pieces of data about the state of the US economy. On Monday, the National Association of Realtors reported its index of pending home sales, which showed a remarkable rebound, gaining 44.3 percent in June, which according to the chief economist of the association signals a spectacular recovery and the resiliency of the American consumers, as well as their desire for homeownership. He added that the housing sector could lead the way in terms of economic recovery. In the previous month, the index contracted by 21.8 percent.

The Federal Reserve Bank of Dallas also published its Fed Manufacturing Index, which signaled a recovery in Texas' manufacturing sector. The index contracted, though at a slower pace, by 6.1 points. In May, the index stood at -49.2, so June's figure also shows a remarkable improvement.

On Tuesday, the markets learned that the Chicago Purchasing Managers' Index increased to 36.6 in June, signaling a slower-paced contraction, after being at 32.2 on the previous month. Though it only gives information about the state of the economy of the region, many consider it a proxy for the performance of the whole US economy.

The Federal Reserve Bank of New York leader John Williams commented that the pace of the economic recovery is being slowed by the fact that a spike in cases has been reported in several states, so full recovery could take years.

People have been getting back to work and the unemployment rate has started to edge down,he commented, Although this improvement is welcome, the economy is still far from healthy and a full recovery will likely take years to achieve, he continued, highlighting that the fate of the US economy is linked to the whatever path the outbreak of the Covid-19 takes.

While testifying in front of House Financial Services Committee, the United States Treasury Secretary Steve Mnuchin announced that he is currently working with the government and the Senate to pass an additional coronavirus stimulus package by the end of July. The package would aid small businesses that have been hit by the crisis.

The Federal Reserve chairman Jerome Powell added that a second Coronavirus outbreak would force the government and the people to withdraw the economic activity, which makes the current path of the US economy uncertain. He also announced that the bank is continuing to look to see whether it’s Main Street Lending Program can be improved, adding that the bank can lower the minimum loan threshold.

On Wednesday ADP Employment Change figure was released, standing at 2,369,000, below the analysts' expectations, as they expected an increase of 3 million. June's ISM Manufacturing PMI was also reported, showing a significant improvement in the manufacturing sector, as it stood at 52.6, signaling an expansion, following the previous month's figure, which stood at 43.1.

The Federal Reserve released its minutes, stating that they expect to keep the current accommodative monetary policy until the economy gets back to normal. In its last meeting, the Federal Open Market Committee decided to leave the benchmark interest rate close to zero.

On Thursday, June's Nonfarm Payrolls figure was released, which increased by 4.8 million, beating the analysts' expectations who foresaw an increase of 2.9 million. The unemployment rate contracted from 13.3 percent in May, to 12.3 percent. Average Hourly Earnings (year-to-year) stood at 5 percent, after being at 6.6 percent on the previous month.

May's Trade Deficit increased, as both exports and imports fell by 4.4 and 0.9 percent respectively. The trade balance stood at -54.6 billion. Factory orders advanced by 8 percent, contrasting with the previous month's 13.5 percent contraction.

Reuters recently released a survey that shows what currency speculators think about the future of the US dollar. In summary, according to the perception of the vast majority of them the future of the currency depends on whether there is going to be another coronavirus outbreak this year. If there is one that would push the dollar performance higher as it would fuel the appetite for safe-havens.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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