U.S. dollar fell as the optimism is rising on FX markets

The U.S. dollar declined on Tuesday. It fell to a three-month low of 1.3503 against the Canadian dollar, last trading down by 0.4%. The greenback also dropped down against the Australian dollar, which soared to $0.6852, its highest point since January 24.

The dollar index tumbled down against a basket of six major currencies at 97.44, its weakest point since mid-March, before moving in neutral territory at 97.82. The index has lowered by about 5% from a peak hit in March.

The dollar will probably weaken by about 10% in narrow trade-weighted terms to fully take out the risk premium. This was as was stated by George Saravelos, a currency strategist at Deutsche Bank. So far, the currency has dropped by 3%. But Saravelos sees euro/dollar increasing to $1.15.

Meanwhile, the euro hit an 11-week high on Tuesday as investors maintain their hopes for a fast global economic recovery. The euro last traded at $1.1178, up by 0.4% on the day. This is after it skyrocketed to $1.1185, its highest point since March 17.

The markets remained optimistic despite growing fears over U.S.-China tensions and mass protests in the U.S. over the death of an unarmed black man in police custody. President Donald Trump promised to deploy the military to halt violence if governors and mayors failed to regain control of U.S. streets.

The protests erupted over the death of a 46-year-old African-American, George Floyd. He died in Minneapolis police custody after a white officer pinned him under his knee for almost nine minutes.

What caused investors’ optimism?

Traders hope that central banks will continue to buy government bonds or other financial assets to protect their economies from the pandemic.

Some investors expect that the European Central Bank will increase its 750 billion-euro Pandemic Emergency Purchase Programme on Thursday, by around 500 billion euros.

Charalambos Pissouros, the senior market analyst at broker JFD Group, stated that the strengthening of the commodity-linked currencies and the weakening of the safe-havens suggests that investors’ appetites were supported for another day. The Japanese yen declined by 0.1% versus the dollar to 109.71.