The world’s safe-haven currency, the U.S dollar is enjoying a robust trading session, amid impressive data coming from the world’s largest economy, as investors are selling out other G7 currencies and increasing their buying pressure on the U.S dollar.
What we know
At the time of writing, the U.S dollar index – used to track the U.S dollar strength against 6 major currencies was up by 0.6%.
The world’s largest economy bounced incredibly well with a record – yet temporary surge of growth in Q3, as companies restarted and stimulus cash triggered more consumer spending – reversing fears coming from some quarters that the U.S economy was on the brink of collapsing amid surging COVID-19 crisis.
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- U.S GDP grew 7.4% from the prior period, a quarterly rise that equals an annualized pace of 33.1%, as seen from the U.S Commerce Department’s initial estimate released today.
- The data beat leading economists’ estimates for a 32% increase, which was already well above prediction three months ago for an 18% surge. Personal spending fueled the surge in growth, climbing an annualized 40.7% – also a record, while business investment and housing also posted strong increases.
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.
What they are saying
Stephen Innes, Chief Global Market Strategist at Axi, also spoke on key issues prevailing in the safe-haven currency market
“The US dollar is trading a bit firmer today as European and US equities fall on concerns over rising COVID-19 cases on both sides of the Atlantic.
“But it’s the laundry list of worries, be it pre-election caution, US Congress failure to launch (stimulus) or France and Germany lockdown concerns, risk aversion demand for the greenback is nothing new.
“Under these conditions, the US dollar tends to shine bright as the cleanest shirt in that dirty laundry list.”
Why the US dollar rallies higher
In spite of the world’s largest economy having a surge in COVID-19 caseloads, forex traders believe that the US recent data has now shown that the world’s largest economy is in good shape and recent price action showed an oversold signal in the past few days.
This means that any time the value of the safe-haven currency drops below the 93.00 support level, traders increase their long positions.