Dollar gains support due to the stock markets rally ending

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The US dollar began to gain support due to a beginning period of consolidation in the stock markets and the suspension of vaccine trials from Johnson&Johnson and AstraZeneca. Also, the investors clearly began to take profit after the rally in the stock market ahead of the US’s presidential election.

Looking at the situation, I can say that investors’ sentiments are no longer supported by the idea of new stimulus measures in the US. These hopes previously contributed to a convincing rally in stock markets, but now the news of the suspension of work on a vaccine is pushing investors to take profits.

Against this background, the US dollar received support. For the first time in the past few days, the ICE dollar index has added sharply. As I’m writing, the dollar is at the level of 93.55 points. Also, in my opinion, the local strengthening can be associated with the current picture in the US government bond market, where 2-year and 10-year notes have diverged in their yields.

It seems that investors completely focused on the COVID-19 vaccines news and the presidential race results in the United States, simply ignoring the emerging economic statistics. Today, for example, the US manufacturing inflation figures will be released. In its annual value, it is expected that it will add 0.2% against the earlier decline of 0.2%, and on the contrary, the monthly value will slow down to 0.2% from 0.3%. Even though investors mainly monitor consumer inflation, industrial inflation dynamics also play an essential part and can serve as a leading indicator that consumer demand will remain low. Considering this, the future interest rates will be extremely low and will be a significant negative factor for the US currency rate.

What to expect soon

I believe that the financial markets on the eve of the US elections will face a period of consolidation accompanied by high volatility.

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