The U.S. currency stayed near two-year lows on Wednesday. The dollar index stood at 93.720 against six major currencies, near its lowest level since June 2018. Furthermore, the greenback traded at 105.05 yen, almost reaching a 4-1/2-month low of 104.955, hit in the previous session.
The greenback’s weakness stems from a crumbling perception that U.S. economic growth would be stronger than the rest of the developed world.
U.S. consumer confidence lowered more than expected in July, losing steam following two months of recovery. Rising COVID-19 infections are dampening consumption, as the United States struggles to contain a surge in new cases.
Four U.S. states in the west and south reported one-day records for Covid-19 deaths on Tuesday, while nationwide cases stayed high. Analysts think that the U.S. Federal Reserve will stick to a dovish stance at its policy review later on Wednesday.
Yujiro Goto, the chief FX strategist at Nomura Securities, also stated that, given the concerns about the second wave of infections, markets think the Fed is likely to take a dovish policy stance.
On Tuesday, Goldman Sachs stated that a potential Fed shift towards an inflationary bias as well as record-high debt levels by the United States government is raising concerns around the longevity of the U.S. dollar as a safe-haven currency.
Furthermore, some market players think the greenback is long overdue for a pullback. This is after the Federal Reserve’s unprecedented money-printing since March to cope with a pandemic-triggered crisis.
How did the Euro and Sterling fare?
The euro traded at $1.1723 on Wednesday. It rose slightly during the session, even though it has lowered a tad from Monday’s 22-month high of $1.17815.
Meanwhile, the British pound changed hands at $1.2931, after hitting a 4-1/2-month high of $1.2952 on Tuesday.
The Australian dollar stood at $0.7170, near its 15-month peak of $0.7184, touched a week ago. But it declined slightly after data showed Australia’s consumer prices drop by a record amount in the second quarter.