Until recently it seemed that the US dollar economy was falling as a result of events caused by COVID-19, but it has managed to maintain its value in the Forex market. How is this possible?
Contrary to expectations, the dollar is getting stronger, based on the recent increase in cases of coronavirus infections, rising to 38,000 identified yesterday. There have been several scourges that have allowed the U.S. currency to rise above the market in terms of stability.
The 36,000 cases detected are not far from the highest number of reported infections in the US, which is 36,426. Therefore, the government took economic measures to help small, medium, and large businesses and families, with the aim of alleviating some of the income shortfalls resulting from the massive layoffs during the quarantine.
FED, more foreign currency and increased supply: More demand for the dollar?
The US Federal Reserve surprised the Forex community with a significant injection of the dollar into the market.
It financed the government with money for the state’s economic aid plans, commonly denoted as an inflationary shock, but which in this case, was different.
Surprisingly, there was a not so expected reaction from the market, where a revaluation of the dollar was observed, and also a slight strengthening. Why would this happen?
Because of the coronavirus, there is economic havoc all over the world.
So, the Forex community saw this action by the FED as an escape opportunity, a temporary shelter to store their capital safely, thus bringing with it, at the same time as supply, an interesting increase in the currency’s demand.
Forex Market: Fed Withdraws Monetary Liquidity: Will the Dollar Strengthen Further?
Market and Production Quotes
Overall, the dollar made its mark on the Forex market, taking a small step forward from its peers. It pushed the Euro back to $1,1251 and the British Pound to $1.2423. Against the Yen, the dollar climbed to 107.05 yen from a recent one-and-a-half month low of 106,075 yen.
The IMF further lowered its global production forecast for 2020, seeing that the damage caused by COVID-19 is deeper and wider than previously thought.
Although government stimulus cushioned the initial blows of the pandemic on companies, to survive the closures, investors fear that a deepening recession will prevent companies from recovering quickly.
Bob Prince, co-head of Bridgewater Associates Investments, said the U.S. stimulus efforts could support business cash flows in the summer, but the economic risk of the pandemic is likely to spread.
Will the dollar remain strong? Will businesses make it through this difficult period?