The euro, the Australian and Canadian dollars, and the Korean won have all touched their highest levels in more than two years this week, while the Swiss franc is at its strongest since 2015. The pound is just shy of its one-year peak, despite uncertainty over Brexit trade talks. More weakness in the greenback may come as asset managers build record short bets.
With optimism over U.S. stimulus talks, bets on a successful roll-out of vaccines and China’s economic rebound driving bets for global growth, demand for the world’s reserve currency has fallen. Some on Wall Street are warning that the greenback will undergo a bearish cycle with the Federal Reserve keeping rates low for years.
“A smooth vaccine roll-out soon can potentially be a game changer” as it may accelerate growth recovery and entrench dollar weakness, said Christopher Wong, senior foreign-exchange strategist at Malayan Banking Bhd. in Singapore. “Procyclical-proxy currencies including the Aussie, kiwi in developed market space and won in Asia excluding Japan can benefit while the dollar remains on the backfoot.”
The dollar has declined against major peers in seven of the first 11 months of the year, according to the Bloomberg Dollar Spot Index. It has also dropped almost 8% against the Swiss franc and 4% versus the yen in 2020, two other traditional haven currencies, underlining the impact of the Fed’s unprecedented stimulus.
Fed Chair Jerome Powell said Wednesday that the central bank will keep rates low until the economy is “very clearly past the danger” from the pandemic. During the global financial crisis, when the U.S. central bank employed quantitative easing, the dollar had gone through a similar decline.
Here are key levels that were breached this week:
“Risk-on sentiment seemed to catch another leg higher this week — we think this should accelerate the dollar’s tilt lower in the near term,” said Terence Wu, foreign-exchange strategist at Oversea-Chinese Banking Corp. in Singapore. “This round of dollar weakness is still more focused in the G-10 space,” although “we expect USD-Asia downside to open up in time.”
By Ruth Carson and Hooyeon Kim
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