The greenback gained some ground at London’s trading session, as currency traders and many global investors turned to the safe-haven asset. Earlier on Thursday, the world’s largest economy reported over 60,000 COVID-19 cases, thus weakening hopes of accelerated economic recovery.
The U.S. Dollar Index, which tracks the American dollar against a basket of major currencies, gained 0.19% to 96.858 by 5.56 am local time on Friday.
“The market was in a mild risk-off mood, following pretty bad [COVD-19] figures from Florida,” Kyosuke Suzuki, director of currencies at Societe Generale told Reuters.
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Why tracking the U.S dollar Index helps: Individuals hoping to meet foreign exchange payment obligations, and process transactions via the dollar to countries like England, France, or Japan, will need to pay fewer dollars for such transactions.
The American Dollar Index tracks the dollar’s strength relatively against a bouquet of other major currencies around the world, such as Japanese yen, Euro, British pounds sterling, Swedish krona, Canadian dollar, Swiss Franc, etc.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, explained why the odds on the greenback seem to be gaining traction. He said:
“What was interesting in Asia and UK trades yesterday was ‘Risk on’ currencies held on but were reluctant to punch higher despite the better tone in equity markets led by continued gains in China and the tech sector.
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“This suggests that there were some doubts if the time was now for a good old-fashioned reflation trade driven by government spending, central bank liquidity, moral suasion (China telling citizens to buy stocks), and some quirky supply issues in copper and lumber.
“Despite the Forex market fickleness and risk on risk-off proclivities, I still see this is a textbook USD down environment, and I see no reason to stand in the way.”
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In addition, America is presently responsible for over 3.1 million COVID-19 cases. There are still over 12.2 million cases and 550,000 deaths globally as of July 10, according to John Hopkins University data. Some states reported a record number of new cases on Thursday.