The U.S dollar got powered up on Wednesday at London’s trading session. This gain is coming as global investors flock in droves into the safe-haven currency, after digesting U.S. President Donald Trump’s surprising cancellation of talks on the latest stimulus packages.
The U.S. Dollar Index, which tracks the greenback against a basket of other currencies, edged up 0.19% to 93.920 by 4.40 am GMT.
The suspension of trade talks brought in high volatility after the President was discharged a few days ago from Walter Reed National Military Medical Center, where he was being treated for COVID-19.
Why the U.S dollar is up
President Trump’s cancellation of the stimulus deal could further create fundamental shocks to the U.S. economy, which was already looking fragile, though inflows of funds into safe-haven assets like the U.S dollar will increase.
However, it should be noted that after calling off the stimulus talks with the Democrats, US President Trump is calling for more targeted support — $25 billion for airlines and $135 billion for the Paycheck Protection Program — out of unused funds from the Cares Act.
Quick fact; The U.S. Dollar Index tracks the American dollar against a basket of other major currencies (like the Japanese yen, British pound sterling, Swedish Krona, and Euro). Individuals hoping to meet foreign exchange payment obligations via dollar transactions to countries like Europe, and Japan, would need to pay fewer dollars in meeting such obligations.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, also spoke on President Trump’s cancellation of the stimulus deal. He said:
“The USD dollar is back on yet another “safe-haven” binge as the risk-on mood got tripped up on the way to stock market nirvana when President Trump pulled the plug on a stimulus deal.
“An assortment of tales was making the rounds, mind you, mostly after the fact variety as to why risk appetite was moving higher, including relief about President Trump’s health, hopes for a ” big government” fiscal stimulus or comfort that the election outcome might be sufficiently wide to rule out a contested result.”
In addition, the prevailing macro suggests that global investors’ present mood will be dampened on taking more risks, but the U.S dollar looks to be supported for now as global investors turn more cautious towards strengthened geopolitical uncertainty.