This week is not going well for the buyers of the American currency. The dollar index (DXY) has lost 1.15% over the past three days and fell to its lowest level since March 23.
The dollar came under pressure due to the decline in US Treasury yields. The yield on 10-year US government bonds dipped to 1.65%, while last week it exceeded 1.7%. The DXY sell-off also intensified amid improving market sentiment. The IMF on Tuesday raised its forecast for global economic growth for 2021 to 6%, reflecting the overall improvement in the economic outlook for the US economy. According to IMF experts, the US GDP will grow by 6.4% this year, which means that the US economy will be the only major economy whose growth rate will exceed the growth rate before the pandemic.
The upbeat assessment followed Friday’s strong labor market data and the services PMI released earlier this week, which hit a new all-time high. In terms of emerging economies, China also paints a positive picture. It is the only country to return to pre-crisis growth rates last year, and its GDP is expected to grow by another 8.4% this year.
Market enthusiasm is also supported by statements by US President Joe Biden that the pace of vaccinations needs to be accelerated so that all American adults can be vaccinated against COVID-19 by April 19. At the same time, he urged people to be patient and asked them to observe safety measures against the background of the spread of new strains of the virus. All states except Hawaii said they could meet the deadline.
Market participants continue to hope that government support programs, vaccination of the population and easing of quarantine restrictions will contribute to a rapid recovery of global economic activity. In such an environment, traders begin to show a greater appetite for risk, which leads to a decrease in demand for defensive assets such as the franc, yen and dollar.
Apparently, the dollar is less and less trusted at the level of the world’s central banks. The share of the US dollar in world reserves has hit its lowest since 1995. This is evidenced by the data published last week by the International Monetary Fund.
In December 2020, the share of the dollar in world foreign exchange reserves was 59%, which is 1.5 percentage points less than in the previous quarter. With that said, the current sell-off in the USD (DXY) index looks quite logical and could be the beginning of a new downtrend. If the sellers’ expectations are met, the American currency index will quickly fall back below 90 points.
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