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Dollar Slips Back For Now; EUR/USD Seen Testing 1.05

·2-min read

By Peter Nurse - The U.S. dollar has sold off a touch Monday, as U.S. politicians squabble about the details of the latest rescue package, but its underlying strength points to more gains going forward.

At 03:55 ET (0755 GMT), EUR/USD traded at 1.0709, up 0.1%. The U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 103.265, down 0.2%. USD/JPY fell 0.6% to 110.11, while GBP/USD traded at 1.1639, largely flat.

It continued to make gains against emerging currencies, hitting a six-month high against the yuan and a four-year high against the ruble

Investors have been liquidating positions in riskier investments to keep their money in dollars due to the uncertainty caused by the epidemic. And while major central banks have ramped up efforts to ease a global dollar funding crunch, the U.S. currency has generally remained sought after.

This demand has been hit Monday after U.S. politicians failed to agree on the terms of a funding package of more than $1 trillion, resulting in it not getting enough votes in a key Senate procedural vote late Sunday.

But this is likely to be only a temporary blip, and Danske Bank sees further gains for the greenback against the euro.

“We see EUR/USD heading lower still in the near term, as broad USD strength is set to continue to reign,” said Danske Bank, in a research note. “We target the cross to hit 1.05.”

The bank pointed to ECB efforts potentially failing to contain European stress and/or Federal Reserve initiatives managing to fade dollar funding stress. But, “more broadly, it is no longer a question of whether or not the USD is a safe haven when things get bad enough – and we have no reasons to expect risk sentiment will improve markedly for the short term.”

Over the longer term, despite a blurred outlook, the bank doesn’t expect the dollar to significantly lose strength against the euro.

“Despite extreme fiscal and monetary policy action across countries, we deem that it will be hard to find renewed confidence in the EUR given the institutional set-up in general and the German reluctance to use fiscal easing specifically. As a result, we expect EUR/USD to linger in the 1.07 area for an extended period of time,” Danske added.

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