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US Dollar Weakest amid Risk Appetite

May 26, 2020 at 21:09 by Vladimir Vyun

A fan of USD100 banknotesThe US dollar was the weakest major currency on the Forex market on Tuesday, falling against all other most-traded rivals. The positive market sentiment limited demand for the greenback in its role as a safe haven, pushing it back even against other safe currencies, like the Japanese yen. Rather positive domestic macroeconomic data was unable to support the US currency.

Markets were in an optimistic mood due to hopes for a potential COVID-19 vaccine. While no vaccine proved to be effective has been developed yet, a number of candidates have entered a phase of clinical tests on human subjects. In particular, markets were happy to hear that Novavax initiated a Phase one clinical trial of a coronavirus vaccine candidate.

US macroeconomic data released on Tuesday was rather decent. Reports on the housing market turned out to be much better than was anticipated. While the consumer confidence was not as good as markets were hoping for, it still demonstrated an improvement in April compared with the previous month. But markets paid little attention to the positive data.

Going forward, the United States will release quite a few macroeconomic reports over the rest of the week. Of particular interest to market participants will be Thursday’s release of a preliminary GDP print for the first quarter of this year. Analysts estimated ahead of the release that it will show a drop of 4.8%, the same as in the advance report.

Federal Reserve Chairman Jerome Powell will deliver a speech on Friday. It is also expected to be important event for the dollar as the Chairman may drop hints about plans for monetary policy in the future. Market participants were discussing the possibility of negative interest rates, though Powell strongly opposed such an idea, saying last week:

There’re plenty of people who think negative interest rates are a good policy. But we don’t really think so at the Federal Reserve.

Nevertheless, prospects for extremely low interest rates were also weighing on the US dollar.

EUR/USD climbed from 1.0892 to 1.0981 as of 21:08 GMT today. USD/JPY declined from 107.65 to 107.56. USD/CAD sank from 1.3977 to 1.3776.

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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