European currencies lowered during the last days. The euro fell by 0.5% to $1.1130 on Tuesday. The sterling also dropped down to its weakest point since September, declining by 0.6% at $1.2192.
Analysts think that trading had been relatively orderly on the forex markets despite the large moves and poor liquidity. However, volatility has doubled over the last few weeks.
Traders are concerned that those measures, which the U.S. Federal Reserve and policymakers in Japan, Australia, New Zealand, and elsewhere employed, are insufficient to combat with the rapidly spreading coronavirus. But some analysts caution about the hasty moves, as they may backfire.
Asian currencies are also in turmoil. The Australian dollar fell by 0.7% to a new 11-year low of $0.6065. The U.S. dollar, on the other hand, rebounded after its recent downfall.
What Caused the U.S. Dollar’s Rebound?
After lowering significantly on Monday, the dollar rose again on Tuesday, rebounding versus the Japanese yen and hitting new highs against riskier currencies. Traders chose the most liquid currency amidst very fragile sentiment.
As a result, the U.S. dollar index increased by 0.3% to 98.444, close to its recent high of 98.817. The currency also gained 1% against the yen to 107 yen, recovering much of its losses on Monday.
Investors are waiting to see the scale of government fiscal responses to combat the economic downfall from the coronavirus and limit economic contraction. They worried as the market liquidity was tight.
However, ING analysts stated that the dollar could hold onto its gains as markets understandably remain very fragile. But they also think that when the dust settles, the dollar will probably end up a little lower. The best level for the dollar index would probably be between 99 and 100.
Meanwhile, Europe and the United States are taking stricter measures to curb the infection. China has reported a fresh rise in cases, and Malaysia is preparing to enter lockdown.