Until recently, it seemed that the US dollar economy was falling due to events caused by COVID-19, but it has managed to maintain its value in the Forex market. How is this possible?
Contrary to expectations, the dollar is stronger, based on the recent increase in cases of coronavirus infections, amounting to 38,000 infections identified yesterday. There have been several scourges that allowed the American currency to rank high on the market in terms of stability.
The 36,000 cases detected are not far from the highest number of infections registered in the US, which are 36,426 infected. For this reason, the government took economic measures to help small, medium, large companies and families, with the aim of alleviating somewhat the shortage of economic income from the massive layoffs during the quarantine.
EDF, more currencies and increased supply: More demand for the dollar?
The United States Federal Reserve surprised the Forex community with a considerable injection of the dollar into the market.
It financed the government with money for the state’s economic aid plans, commonly denoted as an inflationary coup, but which in this case was different.
Surprisingly, there was a not so expected reaction from the market, where a revaluation of the dollar was observed, as well as a slight strengthening. Why would this happen?
Due to the coronavirus, economic havoc exists worldwide.
So, the Forex community saw this Fed action as an escape opportunity, a temporary haven to store their capital safely, thereby bringing, along with supply, an interesting increase in demand for the currency.
Market price and production
Generally speaking, the dollar made its mark on the Forex market, taking a small step forward with respect to its peers. It pushed the Euro back to $ 1.1251 and the British Pound to $ 1.2423. With respect to the yen, the dollar traded it to 107.05 yen from the one and a half month low of 106.075 yen recently reached.
The IMF further lowered its global production forecast for 2020, seeing that the damage caused by COVID-19 is deeper and broader than previously thought.
Although government stimuli cushioned the initial shock of the pandemic in companies, to survive the closings, investors fear that a deepening recession will prevent companies from recovering quickly.
Bob Prince, Co-Director of Investments Bridgewater Associates, said stimulating US efforts could support companies’ cash flows in the summer, but the economic risk of the pandemic is likely to spread.
Will the dollar stay strong? Will companies manage to overcome this difficult stage?