Dollar Struggles with Fewer Investors
The dollar has sold off in early European forex trading on Monday, as fewer investors seek this safe haven. This is amid the rising optimism about the global economic recovery. Moreover, as U.S. President Trump offers up a measured response to China’s move to tighten control over Hong Kong.
Most market participants believe that the worst of the health and financial and economic crises are now behind us. That is supportive of commodity prices, and if we’re past the worst, then commodity currencies tend to do well. The U.S. dollar tends to do poorly in the early stages of recovery.
That’s according to Commonwealth Bank of Australia FX analyst Joe Capurso.
Helping the risk-on tone, an official business survey from China showed its factory activity went slow in May. But momentum in the services and construction sectors sped up.
Additionally, President Trump decided not to end phase one of the U.S.’s trade deal with China. This was when he laid out his response to China’s national security law for Hong Kong and Macau on Friday. Although the president did vow to end Hong Kong’s special status.
Dollar Struggles Amid Growing Optimism on Economy
USD/CNY traded at 7.1176, down 0.2%, with the yuan slightly recovering.
However, over the next three months, Goldman Sachs sees the yuan falling to its lowest since 2008. This was amid uncertainty over U.S. policy toward China.
Goldman sees the yuan falling to 7.25 per dollar on a three-month horizon. This was before recovering toward 7.15 per dollar over six months and 7 per dollar in one-year. That’s up from targets of 7.15 per dollar, 7.05 and 6.90 earlier.
The euro has continued to strengthen Monday, having been boosted by last week’s EU government stimulus package.
Markets await a meeting of the European Central Bank on Thursday. It expects to raise its asset-buying by around 500 billion euros to 1.25 trillion.
Forex reports EUR/USD traded at 1.1140, up 0.4%, after climbing 1.8% last week.
Also sterling is rising as the U.K. begins to ease months-long lockdown measures. The government has announced the resumption of competitive sport from Monday.
Another round of Brexit talks got underway on Tuesday ahead of the June 18-19 EU summit. This is by which time London needs to decide on asking for an extension to the transition agreement.
Meanwhile, GBP/USD traded at 1.2392, up 0.4%, after climbing 1.7% last week.
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