USD reverses slide to gain against the majors

After a series of tumultuous weeks for the greenback, it looks like the declines may finally be over. The USD’s rapid ascent that began in March was largely a product of corporate and private fears prompting many to hoard dollars until the dust eventually settled. There was never any doubt that the dollar’s downtrend was a natural result of the return to normalcy following the coronavirus crisis. After that initial knee-jerk reaction, we are now beginning to see the dollar gradually move towards its fair value against the world’s majors.

Poor jobs data, Brexit weighing on sterling

The official UK unemployment rate may look reasonable at 3.9%, but this figure is for April, and a lot has changed in a month. Jobseekers’ applications skyrocketed by 528,000 in May, adding to the more than 1 million in April. Naturally, this wasn’t good news for the pound, as the Cable fell to 1.2550.

The other big bugbear for sterling is the ongoing Brexit saga. With coronavirus concerns on the wane, the old albatross of Brexit has returned to the foreground, and the lack of progress at the negotiating table is feeding the sterling bears. More drops could be on the way following the BoE meeting, at which the regulator is expected to announce more QE.

Euro down as recovery fund stalls

While the European markets have been performing well, the euro’s recent gains are mostly attributable to the dollar’s predictable, post-crisis decline. However, the euro drew some of its strength from anticipation surrounding the EU recovery fund. It’s no coincidence, then, that the Fibre’s failure to push above 1.13 comes at the same time as EU talks stall.

Another factor behind the run towards the dollar was the relatively hawkish comments made by Federal Reserve chair Jerome Powell. Speaking before Congress, the Fed chief stated that, while the regulator will continue to use every tool at its disposal, it would nevertheless be “a difficult and challenging time” ahead.

Japan bucking the trend

Despite the greenback’s gains against many other majors, the dominant trend of a stronger dollar has not been seen in Japan this week. After trading flat for the past three days, yesterday saw it dip back below the psychological support of 107, before eventually closing at this exact level.

Looking forward to the next few weeks, downward pressure on USD/JPY appears to be building. Still, the dollar will have to close below 106.70 before we see more significant losses. Provided the pair does not creep back above its strong resistance of 107.60, it could well weaken to last month’s low around 106.00.

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