USD Vulnerable to Negative Interest Rate Expectations

The USD has been under pressure consecutively over four consecutive weeks now. In terms of the DXY we have observed a drop of some 2% within the noted time frame, falling to the lowest levels since the week of 8 June.

There isn’t one particular catalyst, however a few reasons to note; increased risk appetite, thanks to improving economic data globally. Markets are gaining in confidence of the so-called ‘V’ shaped recovery.

Optimism surrounding a vaccine for Covid19, there are a few companies working on this, appear to be having promising results with trials; Gilead Sciences, Astrazeneca and Moderna, as indicated in the latest reports.

Lastly but not least, expectations for negative interest rates to be introduced in the United States from 2021. Fed funds futures have been implying negative rates. There are increased risk in the country given the potential second wave of the virus, economic turmoil that could force the FOMC to introduce negative rates.

Technical view - DXY monthly chart

Price action formed somewhat of an ‘M’ structure, with the neckline viewable at around 96.50-40. A monthly closure below will leave it exposed to greater downside, leaving room for the dollar’s peers to outcome.



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