U.S dollar turns green amid fears of recession

The US dollar began to strengthen after experiencing severe declines over the previous few trading sessions, accompanied by steadily declining US economic statistics and a gloomy forecast for the US economy.  

The manufacturing sector’s economic activity shrank more than anticipated in July, while the expansion of jobs slowed down more than predicted in the same month.  

The delayed rate decrease that may have emphasized the economic downturn in the US economy is anticipated to be countered by a larger federal rate cut. The dollar index is up by 26 basis points on the day as of right now, quoted at 102.75 index points  This follows an almost 2% drop to a nearly seven-month low during the previous two days. 

The US Dollar (USD), as shown by the DXY index, had early selling pressure on Monday but later recovered its losses with the announcement of the upbeat ISM Services data for July. 

The market fears the US economic outlook has deteriorated and may soon be in a recession, even in the face of encouraging data. Following last week’s poor jobs report, the DXY forecast shifted to a bearish tone. The 20-day and 200-day Simple Moving Averages were both below the index.  

Recent price action shows there was still some selling pressure as seen by the declines in the momentum-based Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD). However, an RSI below 30 suggests that a downturn may be approaching. 

After yesterday’s storm caused by dismal jobs data, currency markets seem reasonably quiet. The rising dollar caused the EUR/USD pair to retrace some of its Monday gains. Similarly, the USD/JPY lost nearly all of its gains throughout the year. Yesterday, the Japanese yen dominated the forex market. 

This week’s lack of significant news releases may provide currency traders with a reprieve following this week’s chaotic start to trading. 

The first jobless claims, scheduled for this Thursday, will probably be thoroughly examined since they will reveal the number of Americans who applied for unemployment benefits in the previous week. The greater the number, the tighter the labor market; the indicator serves as a stand-in for layoffs.