U.S. Dollar Was Unable to Cope with Challenges

The U.S. currency erased earlier gains on July 20 as global markets steadied after an overnight selloff. Popular reflation trades in the $6.6 trillion a day currency markets were under pressure due to fears regarding a stalled global recovery. Against a basket of major currencies, the dollar index dipped into negative territory after touching an early-April high of 93.041 hit in the previous session.

Investors and analysts are keeping an eye on the fast-spreading Delta variant of coronavirus. At the moment, the Delta variant is the dominant strain across the world. The new variant could jeopardize global recovery. The world’s largest economy has seen a surge in infections, especially where vaccinations have lagged.

The average number of new cases each day in the past week was more than 32,000. That’s a 66% increase from the average daily rates the previous week. The most populous U.S. state is trying to deal with the number of new cases. The state reported more than 14,000 new cases on Monday. The state’s Department of Public Health no longer reports new data on weekends. So, Monday’s data reflect cases reported on Friday, Saturday, and Sunday. California’s test positivity rate skyrocketed almost 500% since the beginning of last month. The test positivity rate reached 4.1% on Monday. That rate is the highest in California since February 17.

Dollar and other main currencies

The Aussie dollar/Swiss franc cross declined to its lowest level since December 2020 at 0.6714 francs. A favorite proxy in currency markets for economic recovery bets prolonged its losses to 4% in the last 10 trading sessions.

The risk-averse sentiment remained the main driving force in global currency markets. The U.S. dollar, yen, and the Swiss franc strengthened their positions against rivals.

The gains in the greenback and other perceived safe-haven currencies come at a time when yield differentials moved against them. Benchmark ten-year U.S. Treasury yields declined to a five-month low below 1.20% on Monday.

The euro fell 0.1% against the dollar to $1.17845, after declining overnight to the lowest level since early April to $1.1764.

The British pound fell in early London trading. The pound dropped 0.2% to $1.36470. Boris Johnson’s Freedom Day ended lockdown restrictions in England. But the pandemic is not over in the U.K. as can be seen from the number of new cases.