USD Remains Biased to the Upside

[vc_row][vc_column][vc_column_text]The global financial markets saw a dollar funding squeeze just two weeks ago, which persuaded the Fed to unveil aggressive monetary easing steps and to broaden the dollar swap line to boost dollar liquidity. This, together with the massive U.S. fiscal stimulus package, boosted sentiment for risky assets while pushing the dollar down. The dollar funding squeeze was a double whammy for emerging nation currencies, as the dollar’s appreciation against them increased obligations on their dollar-denominated borrowing. Following the Fed’s appropriate response, sentiment mostly improved, and risky assets thus saw a rebound.[/vc_column_text][vc_column_text css=”.vc_custom_1576157129589{background-color: #f9f9f9 !important;}”]

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[/vc_column_text][vc_single_image image=”38047″ img_size=”full” alignment=”center” onclick=”link_image” title=”DXY Chart “][vc_column_text]But the issue is that we have not seen any medical breakthroughs for COVID-19, which leaves the markets at the mercy of adverse developments related to this disease.

If the containment of this virus is not satisfactory (which has been the case in many advanced economies), the governments will have to call for an extension of lockdowns, which would not only dash hopes for a V-shaped recovery but also exert intense pressure on risky assets.

With the recent trend of the dollar being a preferred haven, a dip in risky assets will essentially support the dollar. In other words, I think the dollar remains biased to the upside over the near term.[/vc_column_text][vc_column_text css=”.vc_custom_1565176883833{background-color: #f9f9f9 !important;}”]

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