US Dollar Trades Cautiously Optimistic, But Faces Pressure

Early on Monday, the US dollar is trading somewhat bullish and continuing last week’s rebound, but gains remain limited over worries about the coronavirus pandemic and its impact on the economy of the country. At the time of writing, the US dollar index DXY is trading around 93.58.

While the US dollar had made considerable gains in recent months as a safe haven currency amid fears about the economic impact of the pandemic, analysts expect it to turn weaker in the near future as the Fed is likely to keep interest rates are record lows even as the US’s current account deficit keeps increasing. Meanwhile, US bond yields have fallen to a decade low to 0.5% as markets worry about a second wave of coronavirus impeding economic recovery in the country.

Ratings agency Fitch downgraded the economic outlook for the US from stable to negative, heightening worries about the extent of the downturn the pandemic could drive in the world’s largest economy, and its fallout effect on other economies worldwide. This was prompted by the US government unleashing more stimulus measures in the wake of the coronavirus crisis, causing the country’s current account deficit levels to soar.

The US dollar, however, faces some downward pressure over renewed worries about US-China tensions after President Trump threatened to ban popular Chinese social networking app TikTok in the US. In addition, Secretary of State Mike Pompeo also announced over the weekend that he will act against Chinese software companies that were sharing data with the Chinese government and potentially compromising US’s national security.