US Dollar Trades Strong as Markets Fear For Delay in Eurozone Economic Recovery
The US dollar is trading close to the highest level seen in two months, bolstered by a weakness in the Euro as markets focus on the deeper economic impact the coronavirus pandemic has had and continues to have on Eurozone. At the time of writing, the US dollar index DXY is trading around 91.09.
Even as recent economic data releases from Europe have come in weaker than expected, owing to the latest wave of the pandemic and the ensuing lockdowns, the US is gearing up to roll out more fiscal stimulus to support its economy. As governments across Europe extend lockdowns for a longer period of time, traders worry that Europe’s economic recovery will take far longer than in the US or other markets.
For now, the US dollar has also been trading bullish despite the risk-on sentiment in markets that is driving stock markets higher. Traditionally, the greenback has shared a negative correlation with market sentiment and stock markets, strengthening as a safe haven currency during times of high economic or geopolitical uncertainty.
The recent strength in the reserve currency can also be attributed to significant short-covering by hedge funds, especially against the safe haven Japanese yen. While some analysts maintain that the latest bullishness is a correction against the weakness seen through 2020, others take it a sign that markets are reversing their bearish outlook towards the US dollar.