The dollar has interrupted its almost vertical rise in the forex market, which pumped it to its highs over the last 2.5 years.
Against the backdrop of statistics on business activity for February, which showed that the largest economy in the world was on the verge of a recession, the dollar index, reflecting the exchange rate to six key currencies, has nose-dived since the beginning of the year.
The euro against the dollar added 0.69%, the British pound went up by 0.71%, the yen – by 0.4%, sending the dollar index down 0.6% (to 99.192 points).
PMI business activity indices, which are calculated by IHS and include volumes of output, orders and employment, as of the end of February decreased both in American production (51.5 to 50.8 points) and in the services sector (from 53.4 to 49.4 %). As a result, the consolidated PMI for the economy was below 50 points, separating growth from recession.
Economic activity in the United States has declined for the first time since the global financial crisis, except for February 2013, IHS Markit states in a release. New orders for products from American business fell, which has not happened since October 2009, and export demand declined for the second month in a row.
“The deterioration of the situation is partly due to the outbreak of coronavirus, which manifested itself through a weakened demand for travel and tourism, as well as declining exports and disruption of the supply chain”Markit economist Chris Williamson.
The fall of the dollar will be short-term
Fearing that the locomotive of the global economy had let off the last steam, US stock trading opened with a 1.1% drop in the S&P 500, and government bond prices jumped. The yield on 30 US government securities fell to a historic low of 1.89% per annum, while 7-year-olds came close to it – 1.453%.
“Demand for US debt is capital that runs from risk”Francesco Pesole, currency strategist at ING.
That is why, he notes, the fall of the dollar will be short-term: as the clouds become blacker over the global economy, investors prefer to put their money in “protective assets”, which are American papers and the American currency.
“Investors simply have no alternative among the G10 currencies,” says Pesole: the Japanese economy collapsed by 6% in the fourth quarter, before the coronavirus epidemic, and Europe is experiencing the strongest industrial recession in 10 years (-7% in Germany).
The weakness of competing currencies “will allow the dollar to remain on the throne,” Pesole predicts.