Dollar and COVID-19: clear victory

Exchange Rates 12.06.2020 analysis

There is an ironic situation regarding the US currency: according to experts, the continuation of the COVID-19 pandemic is now beneficial for the USD. The more intense the infection spreads, the more investors run away to the dollar, raising its quotes.

According to preliminary estimates, in the case of the second wave of the pandemic, the dollar will receive additional points, significantly strengthening after the current unrest associated with the Fed’s last meeting. The results of the latter shook the dynamics of the US currency, although they could not knock it down. It can be recalled that the speech of Jerome Powell, the head of the Federal Reserve, turned out to be rather soft or “dovish”, the interest rate was left at the same level, and the monetary strategy of the regulator provides for increasing the Fed balance at the same pace as now.

By the end of this week, the market played the regulator’s “dovish” rhetoric, but its commitment to monetary incentives was an unpleasant surprise for the dollar. It plummeted together with the European currency, which, however, took the chance and slightly rose. The eurocurrency added 0.1%, allowing the possibility for further overtaking of its American rival.

Before the meeting of the Federal Reserve, the volatility of the EUR/USD pair went off scale, but it has now returned to normal. On the morning of Friday, June 12, the indicated pair was trading in the range of 1.1307 – 1.1308. The market noticed such a sharp decline from the previous 1.1385 – 1.1385. Later, the EUR/USD pair went to the levels of 1.1312 – 1.1313. It can be noted that on Wednesday, June 10, this pair reached a great result – 1.1422, a record level over the past three months.

The Fed’s statement was peaceful at first glance, but then it stirred the market, triggering a wave of risky sentiment. The current situation weakened the dollar, giving chances to other currencies. In addition to the euro, the yen and the Swiss franc took advantage of the growth opportunity. However, as soon as the US currency began to recover, it managed to win back some of the losses today.

The situation with the COVID-19 pandemic unexpectedly supported the US currency. This currency, along with other protective assets, has risen sharply due to rising concerns about the global economy. This is due to the signs of the second wave of the coronavirus pandemic, recorded in the United States. According to experts, the fear of a re-surge in COVID-19 in America has strengthened the dollar. Thus, it sharply increased, ahead of other currencies. Experts believe that the upward trend of USD will continue in the near future.

Earlier, experts feared that mass protests in the United States against racial discrimination would provoke a surge in COVID-19 diseases. However, this did not happen, and we hope that the situation will not get out of control. But there is one problem: most of the factors that supported the dollar did not help the dollar “bulls” to start the rally paired with the euro.

Despite a clear win from the COVID-19 pandemic, the dollar will have to confront the Fed’s stimulus measures in the near future, which noticeably weaken it. According to analysts, this trend will continue, and the dollar will have to balance between short-term declines due to Fed’s actions and the situation with the pandemic, which will continue almost until 2022.

Source: Dollar and COVID-19: clear victory

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