The dollar index drifted lower at the early hours of Friday. The safe-haven currency is losing record amounts of inflows, thereby moving towards a second consecutive weekly decline over increased hopes that the U.S. lawmakers will pass the latest stimulus deal.
What we know: The U.S. Dollar Index, used to monitor the relative strength against a basket of other major currencies, lost about 0.17% to trade at 93.485, at the time this article was drafted.
House of Representative Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin resumed talks to discuss the measures, defying President Donald Trump’s ban announced earlier in the week.
Investor’s anticipation of further stimulus measures to support the U.S. economic recovery from the impact of COVID-19 has set the greenback into retreat mode, as improved risk sentiment sees investors buying riskier assets such as commodity currencies.
Also weighing on the dollar are the political odds giving Democrat candidate Joe Biden a higher chance than President Trump in polls, and looking increasingly likely to win the Nov. 3 election.
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 more dollars now in meeting such obligations.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave key insights on the fundamentals weighing down on the safe-haven currency. He said;
“I think the dueling narrative of risk on where muscle memory suggests selling the dollar versus higher US yields where historical correlations tell one to buy the US dollar are holding the Greenback in stasis. Since March, the US dollar has closely tracked US 10y real yields.
“However, the past week hints at a decoupling between the two series, after a 7 bp rise in real interest rates and a broadly flat USD since Oct 2, which kind of supports my views.”