The US dollar under fire

03.06.2020 10:13|Conotoxia Ltd Analyst Team

What happened that the USD/PLN exchange rate dropped from PLN 4.23 to PLN 3.90 in a short time? The American currency is not only losing its position in relation to the zloty. The USD index futures contract are falling for the fifth day in a row. The weakness of the USD seems to go hand in hand with the sell-off of American bonds.

The prospects of increased stimulation of the economy by governments and a loose monetary policy, together with the prospect of global economic recovery, seem to push investors to increase their involvement in more risky assets and to abandon, among others, American treasury bonds and the USD.

Australia, Poland, the Eurozone, who has prospects for a quicker return

It is also worth noting that the Australian dollar has increased to a five-month high compared to the US dollar. There are many indications that investors have turned to economies that are recovering fastest after the coronavirus pandemic and seem to be returning to the right growth path. The same may be connected to the Polish zloty, which has also started to strengthen, and this was not prevented by an unexpected reduction in interest rates. The EUR/PLN exchange rate fell from 4.56 to 4.37 and the USD/PLN exchange rate fell from 4.23 to 3.90 in a short time.

In turn, the euro in relation to the dollar has strengthened to its highest level in nearly three months in the hope that the European Central Bank will support the weakest economies in the euro zone with bond purchases in order to maintain their low yields. The market is expecting the ECB to increase the 750 billion euros PEPP (Pandemic Emergency Purchase Programme) by around 500 billion euros, already on Thursday 4th June.

The EUR/USD exchange rate is already above 1.12, which is the highest level since mid-March.

Relationship between the riots in the USA and exchange rates

The dollar has also weakened slightly today in relation to safe currencies such as the Swiss franc and the yen, due to concerns about the growing impact on the economy of the protests in the United States, which are gaining momentum. The U.S. Department of Defense has moved some 1,600 U.S. Army soldiers to the Washington area, as the Pentagon said on Tuesday, after several nights of violent protests. President Donald Trump threatened to use the army to suppress the spreading protests against racism and police brutality.

What about the dollar in the longer-term?

From a long-term point of view, on this USD index futures contract, we have seen a systematic reduction in the exposure to positions that could gain as the price increases. This may mean that investors have been preparing for a depreciation of the USD for several months now, which may consequently last much longer and be deeper than what we have seen so far.


Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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71.98% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71.98% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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