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Forex - Dollar Tests 2-Year Low Amid Doubts Over Economic Recovery

ForexJul 29, 2020 08:06
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© Reuters.

By Peter Nurse

Investing.com - The dollar traded lower in early European trade Wednesday, languishing near two-year lows, amid doubts about the U.S. economic recovery and the Federal Reserve concluding its latest meeting.

At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 93.507, not far removed from the 93.448 low last seen in May 2018. The dollar continued to lose ground both against haven and risk currencies: USD/JPY was down 0.1% at 104.97, GBP/USD was up 0.1% at 1.2946 and EUR/USD gained 0.3% to 1.1753.

The U.S. Federal Reserve concludes its latest two-day meeting Wednesday, and is likely to stick to a dovish stance at its policy review later in the day, many of its officials having given gloomy forecasts in their recent public appearances..

While there have been some signs that the coronavirus is waning in some of the previous hotspots, four U.S. states in the south and west reported one-day records for coronavirus deaths on Tuesday and nationwide cases stayed high.

Eroding confidence in the U.S. recovery is weighing on the dollar. This isn't being helped by the perception of a lack of unity among the U.S. lawmakers, creating doubts about the timing of the next relief package.

Some Republicans in the U.S. Senate have railed against their own party's $1 trillion coronavirus relief proposal, while Democrats have called for a much larger package.

“It remains unclear as to when and in what form the stimulus will be passed, with a possible delay underscoring the downside risks to the U.S. economic recovery (already hit by rising Covid-19 cases),” said analysts at ING, in a research note. “Consequently, the prospects for a more pronounced and longer lasting U.S. dollar rebound appear to be limited, with the dollar remaining in a structural bear trend, in our view.”

This all prompted Goldman Sachs to suggest that the dollar’s reign as the world’s reserve currency is now coming under threat.

The greenback faces several risks, the investment bank said, including that the U.S. Federal Reserve may shift toward an “inflationary bias,” a rise in political uncertainty while the debt buildup as a result of the pandemic may lead to debasement fears.

“Real concerns around the longevity of the U.S. dollar as a reserve currency have started to emerge,” said Goldman strategists, in a research note published earlier this week.

 

Forex - Dollar Tests 2-Year Low Amid Doubts Over Economic Recovery
 

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