The US Dollar surged at the beginning of the Coronavirus pandemic due to the panicked and tensed credit makers seizing up and sending capital because of the ultimate liquidity of the reserve currency. Then it began to decrease because the Reserve pushed back forcefully deploying huge stimulus at a high rate for unclogging the pipes while becalming the investors. It seems to have been working as the credits spread is narrowing and the market sentiment is recovering.
Reasons Behind The Success Of The US Dollar
This success arrived due to the Greenback however makes some sense. Firstly, the effort of the Fed was unlike any other central bank’s efforts. Secondly, the markets managed to take this as a buoyed sentiment while trying to ease the haven-seeking demand of the US Dollar. The narrative is changing as the time is turning to 2021.
With the pandemic at full force, economic activity is starting to recover cautiously. It may get out of hand as the growth swells in the winter with another round of lockdowns starts to disrupt the commerce. October witnessed the fastest service-sector and manufacturing growth in the time span of two years.
Due to the encouragement gained because of the success of 3 competing Coronavirus vaccines hitting the market, the market is believing that economic activity is on a path of recovery. One by-product that happened due to this optimism is a path away from extreme Federal reserve policy bets which indicates that the Fed might pull back the stimulus at a faster pace than what was anticipated.
There is a gap between the Eurozone and the US Dollar which suggests that the Euro might sink lower with the gradual retracing of the global monetary policy. Technically, the signs of getting back on top are starting to emerge at a trend resistance which is of a very long-term trend.