Home Forex Market Analysis The Dollar Outlook: A Strong US Economy and COVID-19 Worries Support the...

The Dollar Outlook: A Strong US Economy and COVID-19 Worries Support the Greenback

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The Dollar Outlook: A Strong US Economy and COVID-19 Worries Support the Greenback
  • The US economy is showing strength at a time when other economies are taking a hit from new Delta variant concerns.
  • The dollar’s safe-haven status is driving anxious investors towards it.

The US dollar was on a high on Monday, as investors sought refuge in it following renewed fears over the spread of the delta variant of the Covid-19 pandemic. The dollar index was at $93.010, having risen by 0.32% in the previous 24 hours.

The safe-haven status of the US dollar has led to a rise in investors’ appetite for the greenback. At 1305 GMT, EUR/USD was slightly lower, at 1.17807, while GBPUSD lost more ground and traded at 0.47% lower at 1.36997. The Aussie was marginally lower at 0.74829, having lost another 0.15% in the past 24 hours. 

Covid-19 spike weakening other currencies to the dollar’s advantage

The fast-spreading and more lethal coronavirus variant has brought gloom over the global economic recovery with new travel restrictions and lockdowns in place. In addition, some countries that had been preparing to reopen have been sent into a panic. For instance, England’s highly-anticipated reopening is now in doubt.

After a successful vaccination campaign, businesses in England had been preparing for a return to normalcy. Still, with the new wave that had sent the British Prime Minister and Finance minister in self-isolation, it is increasingly likely that new restrictions may be in the pipeline.

The British pound is hanging on hopes that the large population vaccinated will minimize the spread of the virus.

The Australian dollar is highly sensitive to fundamentals, and the latest rounds of lockdowns haven’t helped ease matters. In the past week, about 40 percent of Australia’s population has been put on restricted movement. This has come following the addition of Sydney and Melbourne to the list of regions on delta-related lockdown. At its current price, the Aussie is at its lowest level since February.

In neighboring Asia, Japan is in a pandemic-triggered state of emergency despite being days away from hosting the Olympics. This has also resulted in the world’s third-largest economy announcing that spectators will be locked out of the games’ venue.

Last week, the Japanese yen remained stable, strengthened by the Bank of Japan’s decision to retain interest rates. The announcement seemed to have neutralized potential fears over the bank’s lowering of its 2021 economic growth projections, which were revised downwards from 4.0% to 3.8%.

Still, in Asia, the Delta variant is ravaging Indonesia, while South Korea is also struggling to handle spiking cases. 

Strong US economy likely to keep the dollar rising

Beyond the Delta variant, the US dollar’s recent rise has also gotten some help from last week’s impressive retail data, which raised hope that the US economy is rising steadily and that it may perform better in Q2.

Investor confidence in the dollar is likely to grow steadily, bearing in mind that the latest rise in consumer spending went against expectations. This also comes at a time when inflation fears have done little to dent the dollar’s strong push. 

The dollar has also steadied despite the Fed Chairman Jerome Powell reiterating last week that the treasury would continue to spend on bolstering the US economy, insisting that the current inflation was transitional. 

The US dollar also showed strength against gold on Monday, holding steady despite the yellow metal’s gains on Monday. Gold’s rise was also attributable to its safe-haven status amid the surging Covid-19 cases. However, the dollar’s similar gains limited gold’s rise. At the time of writing, spot gold was trading at $1814.34, having gained marginally 0.12%.

Technical analysis

DXY is currently at 93.010 and is up by 0.298 in the past 24 hours. The RSI is showing a strong momentum at 65, building a strong case for further gains by the US dollar. 

DXY chart

EURUSD is currently down by 0.17 % at 1.17807 and is below the 50% Fibonacci retracement. Its RSI is at 35, depicting a weak momentum. 

EURUSD chart

The pair is, therefore, likely to slip and find support at $1.16854. Any gains are likely to push the prices up to find resistance at 1.18835.

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