Dollar Slides as Investors Regain Confidence in Global Economy
June 01 2020 - 8:57AM
Dow Jones News
By Caitlin Ostroff
Investors have sold the dollar and begun buying riskier
currencies on optimism about an economic recovery as countries
emerge from coronavirus lockdowns.
The ICE U.S. Dollar Index, which measures the greenback against
a basket of currencies, hit its lowest level since mid-March on
Monday, dropping as much as 0.5% before recovering somewhat.
Currencies that tend to gain when risk appetite returns rose
against the dollar, with the Australian dollar up 1% and British
pound 0.3% higher.
Prospects for an economic recovery internationally have improved
in recent weeks. Factories and schools are reopening in parts of
Europe and Asia. The rebound in oil prices has also boosted
petroleum exporting nations such as Russia and Mexico, both of
whose currencies have risen strongly against the dollar over the
past month. And the European Union proposed a recovery fund that
will provide more grants than loans to the nations hit hardest by
the coronavirus.
"Global growth isn't going to be nearly where it was in 2017,
but some pieces of the puzzle are slowly falling into place," said
Chris Turner, head of foreign-exchange strategy at ING Bank. "As
confidence slowly returns, you can sort of drag some of that money
out of super safe havens."
At the height of the stock-market selloff in March, investors
sold other currencies and bought the dollar, which is seen as a
safer asset due to its prominence in global finance. The dollar has
benefited in recent years from higher interest rates and stronger
growth than most developed economies. But with rates slashed,
investors are increasingly looking to the rest of the world for
returns, Mr. Turner said.
Investors see an upside to European growth after the EU proposed
borrowing EUR750 billion ($821.6 billion) from capital markets to
aid recovery from coronavirus pandemic -- a sign of regional
cohesion. The proposal helped send the spread between the Italian
and German 10-year government bond yields -- seen as an indicator
of financial stress -- lower. The euro is up 1.5% against the
dollar over the past month and traded slightly higher Monday, for
$1.111.
"Certainly that news has been really lifting to the tone of the
euro," said Jane Foley, head of foreign-exchange strategy at
Rabobank. If the borrowing plan goes through, it "would be an
enormous step forward," she said.
A wild card for the dollar is China. Some investors took solace
that President Trump didn't impose tariffs on China following its
move to impose national security laws on Hong Kong. Yet China has
also guided its currency weaker against the dollar in recent
weeks.
Should tensions between the U.S. and China escalate, analysts
say the dollar could climb higher again. The potential for a
resurgence in coronavirus infections and the worst civil unrest in
decades in the U.S. could also drive investors to return to safer
assets, Ms. Foley said.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com
(END) Dow Jones Newswires
June 01, 2020 08:42 ET (12:42 GMT)
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