Safe Haven Appeal of US Dollar Weakens as Markets Optimistic About Economic Recovery

At the start of a fresh trading week, the US dollar has weakened against its major peers as its safe haven appeal gets impacted by rising hopes of the global economy progressing towards recovery post the coronavirus-led lockdowns. At the time of writing, the US dollar index DXY is trading around 96.87.

Commodity currencies have gained on the back of upbeat trade data out of China, with exports showing a lesser than expected decline for the month of May. Meanwhile, the Japanese yen has also fallen to an over two-month low against the US dollar in the wake of the rising risk-on sentiment in global markets as economies begin to reopen around the world.

Late last week, the US NFP report revealed a surprising increase in the number of jobs during the month of May – a sign that the US economy is progressing towards recovery and putting the worst behind it in the aftermath of the coronavirus pandemic. Although cases continue to climb higher around the world, most countries have eased lockdown restrictions and allowed businesses to reopen in a bid to contain the economic damage from the pandemic.

Going forward, the US dollar is likely to receive some support amid the possibility of re-escalation of tensions between the US and China. While there have been no recent developments, there is still a possibility that US President Trump could reignite trade tensions with China and upset the risk sentiment in markets all over again.