The U.S dollar jumped up against major global currencies at Monday’s trading session. Currency traders are arbitrarily going long on the safe-haven currency, as many countries tightened COVID-19 lockdowns.
- At the time of writing this report, the U.S dollar index used to track the greenback’s strength against major currencies gained 0.4% to trade at 90.377, after dropping to 89.723 on Thursday for the first time since April 2018.
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What this means
U.S dollar bulls prevailing strength is also driven by the plunge seen in the British Pound Sterling on reports revealing the European Union must change position after Brexit negotiators failed to find an agreement on the weekend, increasing fears that the United Kingdom crashes out of the trading bloc’s at the end of 2020 without a deal.
- The dollar’s rebound comes after it sank to 2 1/2-year lows against major peers last week, driven by optimism that a widening vaccine rollout would revive global growth.
- The British pound dropped over 1% in value to trade at $1.3381 before trading at $1.3400. The Euro was also down by 0.4% to $1.22135.
READ: U.S dollar tumble, Currency traders more risk averse
What you should know
- The U.S. Dollar Index tracks the greenback against a basket of major global currencies such as the Japanese Yen, British Pound Sterling, Swedish Krona, Euro, etc.
- Individuals hoping to meet foreign exchange payment obligations via dollar transactions to countries in Europe or Japan would need to pay fewer dollars in fulfilling such payment obligations.
READ: Currency traders relatively neutral on U.S dollar, despite impressive U.S Jobs report
What they are saying
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave further insights on macros keeping the widely used currency up
- “The US dollar has attracted safe-haven demand in the thinly traded Asia morning market. But, since we are miles away from a reflation trade washout or even a Brexit pancake, traders could view this as a good level to sell the dollar. The US dollar is overvalued after a long stretch of US exceptionalism asset market outperformance. The Fed rate cuts have eroded the US dollar carry advantage central bank’s new average inflation targeting framework should keep (real and nominal) interest rates low for several years.”
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Bottom line
The prevailing situation in the currency market suggests that global investors’ present mood will be dampened on taking more risks, keeping the U.S currency value supported at least for the near term as global investors turn more cautious towards strengthened geopolitical uncertainty.
