Dollar Goes Down with Sluggish U.S. Economic Recovery

The U.S. dollar experienced another fall of 0.1 percent to 92.662 in its value in the European market on August 21, 2020. The fall was imminent as uncertainty over a recovery in the U.S. economy looms in the middle of the COVID-19-enabled financial crisis.

The performance of the dollar was measured at the Dollar Index against a currency basket, which included the Japanese yen, yuan, euro, and pound. It is notable that yen slipped by 0.2 percent to 105.57, and yuan fell by 0.1 percent to 6.9071, while the euro rose by 0.1 percent to 1.1868 and pound went up by 0.2 percent to 1.3240.

Contrary to what was expected, the nation saw an increase in the number of U.S. unemployment benefits applications, which pushed the dollar down.

Additionally, the U.S. Federal Reserve has already warned of sluggish economic recovery with the slow pace of hiring across the nation.

Even though the euro showed major improvements against the dollar, it would be interesting to see how it fares once the eurozone manufacturing data is released.

Rise in retail sales in the UK in July 2020 after reopening of the economy has helped the pound to rebound. As per data from the Office for National Statistics, UK retail sales in July grew by 3.6 percent on a month-over-month basis and 1.4 percent on a year-over-year basis.

The decline in the yuan was the biggest since January 2020. However, amid growing trade tensions between the U.S. and China, both nations have hinted at resuming the talks and continuing the trade of the U.S. oil and other commodities, as informed by White House economic advisor Lawrence Kudlow. If this happens, it could go in favor of yuan.

According to Nordea analyst Andreas Steno Larsen, the main reason behind the dollar value going down is a budget deficit and trade deficit going hand in hand, and that too at a time when rest of the world economies are showing growth.