Profit taking began in the foreign exchange markets, especially for those assets that demonstrated a multi-day rally. This was facilitated by a falling dollar and increased market expectations for a quick economic recovery after the pandemic. Recent US labor market data has generally dazed investors.
The greenback strengthened across the entire spectrum of the market on Tuesday. It grew for the first time this month in relation to commodity currencies. The dollar index gained 0.3% at day trading, but could not stand it and went into the red zone in the US session. Nevertheless, such a picture is unlikely to last long. The dollar is quite capable of resuming growth in connection with the accelerated recovery of the US economy. New shocks at the financial markets are also not excluded.
It is worth noting that investors pushed the problem of the second wave of the spread of coronavirus into the far corner due to the hasty removal of quarantine in many countries. Uncertainty in this area may return the protective asset status to the dollar, and then it will strengthen.
Thus, the latest attempts by the dollar to gain a foothold above can be regarded as a signal to change direction.
USDX
Stock markets were falling today, and if the pullback continues, the dollar will go on the offensive, despite the aggressive stimulating policies of the US central bank. By the way, after too good data from the US labor market, markets began to admit the possibility of a rate hike at the current meeting. According to the CME Group, about 17% of experts expect a rate increase to 0.5% per annum. This, of course, is a tiny figure, but when you consider that the markets have laid excessively low rates in the long term, it's worth paying attention to this information. In addition, Fed officials will present their new assessments of the prospects for economic development. In general, the outcome of the meeting, which will end on Wednesday, causes some concern among the markets, since it is not entirely clear what Federal Reserve Chairman Jerome Powell will say in the end.
If we talk about the recession, then the situation here is not as good as investors paint for themselves, buying securities. According to the World Bank forecasts published on Monday, the US economy this year will lose 6.1% growth, and the eurozone at 9.1%. What is happening now, was not even seen during the Great Depression and during the period of other serious recessions - two world wars. The economy is likely to begin to recover only next year, if the pandemic finally recedes and everything will be fine.
For the dollar, as a defensive asset, such a scenario can be very profitable.
There was also information that the Fed plans to put a shoulder on the falling dollar and start buying gold. The fact is that unprecedented printing of money threatens the reserve status of the dollar. There are no clear signs that the reserve status of the US currency is being questioned. But it is becoming increasingly apparent that the dollar is gradually losing market share to other currencies.
