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US Dollar Weakens As Economy Softens on Coronavirus, 2020 Election Fears

February 21, 2020 at 18:16 by Andrew Moran

A USD bill sloping downwardsThe US dollar is weakening against many major currency rivals at the end of the trading week, driven by disappointing economic data. Analysts are sounding the alarm that the coronavirus is beginning to impact American growth, which is evident in the recent purchasing managers’ index (PMI) readings. Although the presidential election is less than nine months away, the market is beginning to pay attention to the latest developments – and many are worried about what could happen in November.

IHS Markit released several PMI readings on Friday and it found that the manufacturing and service sectors are stalling. The composite PMI fell from 53.3 in January to 49.6 in February, the manufacturing PMI slumped from 51.9 to 50.8, and the services PMI declined from 53.4 to 49.4 – anything below 50 indicates a contraction.

While this is harming financial markets, most executives who were polled by IHS said the current weakness is only temporary and business will bounce back later in the year. It is unclear if the respondents are only optimistic about growth because they believe the coronavirus will subside. The major thing is if the US economy can weather the storm. The US got off to a good start in 2020, but Covid-19 has affected global supply chains and demand in other parts of the world.

In other data, existing-home sales in January tumbled 1.3%, down from the 3.9% gain in December.

Meanwhile, analysts are pointing to an interesting fear in the private sector: The upcoming presidential election resulting in a Democratic victory. Since all the remaining candidates have promised to raise taxes, boost spending, and increase regulations on private business, investors believe this would impact domestic growth.

There are still many primaries and caucuses to go, but the latest national polling averages show Senator Bernie Sanders (I-VT) maintaining an 11-point lead over his competitors. This is followed by former Vice President Joe Biden and former New York City Mayor Michael Bloomberg.

The US Dollar Index, which is a measurement against a basket of currencies, slumped 0.58% to 99.29, from an opening of 99.89. The index is on track for a weekly jump of 0.2%.

The USD/CAD currency pair fell 0.39% to 1.3208, from an opening of 1.3261, at 17:09 GMT on Friday. The EUR/USD surged 0.69%, from an opening of 1.0789.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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