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Dollar Lowers & Sees Heavy Losses

The dollar edged lower in early European forex trading on Wednesday, but ranges are tight. Investors try to digest a combination of upbeat economic data and a gloomy prognosis from the Federal Reserve chairman. Adding to this are worries about a second Covid-19 wave and diplomatic tensions in Asia.

The dollar index was down 0.1% at 96.852. The EUR/USD rose 0.2% to 1.1286 with a clear improvement in EU-wide car registrations in May. But it faces a test from eurozone CPI data later.

The risk-sensitive AUD/USD gained 0.2% to 0.6897 in today’s forex. GBP/USD was largely flat at 1.2570 after a bout of weak consumer and producer price inflation figures. This may raise the chance of further monetary easing at Thursday’s Bank of England meeting.

U.S. consumer spending rebounded in May as retail sales rose almost 18%, the biggest monthly increase in records since 1992. Though, one that followed its biggest-ever drop in April. The data point was the latest sign that the worst of the economic impact from the pandemic may have passed.

However, Federal Reserve chairman Jerome Powell painted another bleak picture of the U.S. economy or Congress. Powell’s testimony continues later Wednesday.

Dollar Supremacy Likely to End

While the Fed is encouraged about the recent data flow as economies re-open, they are a long way from ‘normality.’ Chairman Powell’s semi-annual monetary policy testimony to the Senate reinforces this view. And that won’t arrive until there is confidence the world has overcome Covid-19.

This was according to Analyst James Knightley at ING.

Yet Beijing is struggling to contain a fresh outbreak in the Chinese capital. In the U.S., infections are hitting record highs in six states.

Additionally, tensions have been rising between China and India. There are clashes at a disputed border site leaving 20 Indian soldiers dead. There is also an unspecified number of Chinese casualties.

Wednesday’s slip by the greenback may prove to be the precursor of a much larger move.

Stephen Roach, Yale University senior fellow and former Morgan Stanley Asia chairman, predicted a 35% decline in the US dollar. This is against its major rivals in the forex exchange market in the near future. It cited increases in the nation’s deficit and dwindling savings.

Roach added that the supremacy of the dollar as the world’s reserve currency is likely to end. This is with the rise of China and the decoupling of the U.S. from its trade partners.

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