Dollar Set for Sixth-Weekly Slump ; Experts See Limited Rebound

Dollar Set for Sixth-Weekly Slump ; Experts See Limited Rebound

Investing.com  | Jul 30, 2020 19:50

Dollar Set for Sixth-Weekly Slump ; Experts See Limited Rebound

By Yasin Ebrahim

Invesitng.com – The dollar remained on track to post its sixth-straight weekly slump after falling on Thursday as economic data exacerbating worries about a slowdown in the economy led some experts to warn that good times for the greenback will be limited.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.42% to 93.04.

The U.S. economy suffered its biggest slump on record in the second quarter, and signs the labor market continues to stutter have diminished the prospect of a speedy recovery. This will likely keep a lid on the greenback's chances of mounting a comeback.

"(T)he greenback’s reputation has suffered to such an extent over the past weeks that its appreciation potential is limited," Commerzbank (DE:CBKG) said in a note.

U.S. GDP declined at an annualized rate of 32.9% in the second quarter of 2020, less bad than the expected decline of 34.5%, but still the biggest decline on record.

At the same time, the Labor Department said that the number of Americans making initial claims for jobless benefits rose for the second straight week, albeit by only 12,000, to 1.434 million. Continuing claims, which are reported with a one-week lag, also rose.

Federal Reserve Chairman Jerome Powell highlighted the signs of cracks in the pace of the recovery during a press conference on Wednesday.

“It looks like the data are pointing to a slowing in the pace of the recovery," Powell said.

But the virus' impact on the economy is not the only challenge keeping the dollar down. The ongoing deterioration in U.S.-China relations has also sparked concern.

"It is by no means our assumption that the US dollar will lose its status as the world's reserve currency any time soon; but the corona crisis and the US-Chinese conflict have sown sufficient doubt to justify an increased risk premium for the dollar."

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