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US Dollar Among Strongest on Coronavirus Fears

September 23, 2020 at 18:01 by Vladimir Vyun

Closeup of several USD100 notesThe US dollar was firm today, battling with the Great Britain pound for the title of the strongest currency during Wednesday’s trading. Market analysts explained the strong performance by risk aversion on markets.

Investors are worried about the impact of the coronavirus pandemic and measures to contain it. While many countries were easing restrictions, the surge of new cases around the world is likely to force governments to reinstall lockdown measures. Even without the second wave of the pandemic, the global recovery looks shaky. Purchasing Managers’ Indices released by Markit revealed that the services sector in developed countries is slowing its recovery. Reports from the eurozone were particularly disappointing, revealing that the sector slipped back into decline. The US data, on the other hand, was good. While the US services PMI slipped a bit, it remained firmly above the neutral level of no growth.

The dovishness of the Federal Reserve failed to keep the greenback from rallying. Federal Reserve Chairman Jerome Powell signaled in his testimony that the US policymakers are going to do everything they can to support the economy:

We remain committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.

The Fed stated after the latest policy meeting that it is willing to allow inflation to overshoot the 2% target for some time to account for the period of low inflation so inflation averages at 2% over time. But Chicago Fed President Charles Evans shocked markets yesterday by saying that the Fed may start raising interest rates before inflation starts averaging at 2%:

We’ve sort of said we’re looking to get inflation up to 2%, and then after that, we could be raising rates and still have an accommodative setting of monetary policy. If you read the statement, that’s in the cards. And so, we could start raising rates before we start averaging 2%. It’s still — we need to discuss that.

EUR/USD fell from 1.1707 to 1.1679 as of 18:00 GMT today. USD/JPY rallied from 104.93 to 105.38. At the same time, GBP/USD traded at about 1.2740 after opening at 1.2730.

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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