Price swings in the global financial markets are triggering a bounce in the U.S dollar showcasing the currency’s safe-haven status amid worries over economic growth recovery and political imbalance at the world’s biggest economy.
The U.S dollar was nearly 2% in September against a basket of major currencies, and has its best monthly gain in 14 months and outperformed many other traditional assets for nervous investors in what has been a tough period for gold stocks.
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At the time this report was drafted, the US dollar index that is used to track the U.S dollar against major global currency peers, was up 0.23% to trade at 93.977 earlier on Friday.
Gold, for example, has lost about 4% in September, while the S&P 500 utility sector is little neutral, not forgetting the Japanese yen is flat. The S&P 500 is off nearly 5% in the same period.
Significant gains in global stock market volatility have helped to boost the U.S. currency, as does turbulence in foreign exchange markets after long periods of lukewarm trading.
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Quick fact: The US Dollar Index tracks the American dollar against other major currencies such as the Japanese Yen, British Pound Sterling, Swedish Krona, the Euro, and more. Individuals hoping to meet foreign exchange payment obligations, via dollar transactions to European countries, and Japan, would need fewer US dollars in meeting such obligations.
Why the US dollar is rally higher: In spite of the world’s largest economy having a surge in COVID-19 caseloads, forex traders believe that the US dollar index is showing an oversold signal, meaning that any time the value of the safe-haven currency drops below the 93.50 support level, traders increase their long positions.
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Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics spoke on the prevailing macros, affecting the U.S dollar rivals, by saying “The Pound and the Euro were trading lower on news that British and EU trade negotiators have failed to close the gap on state aid, a key element barring their new agreement on post-Brexit trade ties. The street so desperately wants to get long EURUSD on dips. But it’s not 100% clear to me that the uptrend remains intact. We have decoupled from the absolute bullish uptrend, (ECB more dovish FED less dovish). But with month-end/quarter-end out of the way, the focus will increasingly shift back to the US presidential election just a bit over a month from now.”
