The U.S. dollar recovered some losses on Tuesday after plunging to almost two-week lows. Investors consolidated positions after a selloff overnight due to short-term optimism about the outlook for the U.S. economy.
The dollar lowered recently as hedge funds cut their long positions on the currency in April. Even though the U.S. jobs report on Friday was encouraging, along with a solid U.S. services activity reading on Monday, the greenback continued to decline.
The dollar index plummeted down as low as 92.527 in Asia, reaching its weakest point since March 25 before recovering some overnight losses. The currency skyrocketed to an almost five-month high at 93.439 a few days ago, before beginning downfall. However, overall sentiment turned positive for the greenback in quiet London trading. European stocks hit a record high, and bond yields stabilized.
As a result, the dollar index climbed up by 0.14% to 92.70 today. On Monday, it tumbled down by 0.43%, suffering its biggest single-day plunge since March. 17.
Will the Dollar Gain Again or Continue the Downtrend?
Marios Hadjikyriacos, an investment analyst at brokerage XM, noted that it’s difficult to be pessimistic on the greenback as the U.S. economy is already stronger than Europe’s. America is miles ahead in the vaccination race, as well, and has more stimulus coming.
On the other hand, some analysts think that further dollar gains will be difficult. Investors would need more evidence about the U.S. reflationary advantage against other major economies in gaining strength.
Mark McCormick, the global head of foreign-exchange strategy at TD Securities, stated that the USD level has already outstripped the pickup in non-U.S. growth expectations. He meant that there’s room for the dollar’s pause in its recent uptrend.
The pause in the greenback’s plunge undercut the euro’s rally. The common currency struggled to remain above $1.18.
Meanwhile, the Australian dollar dropped to $0.76415 on Tuesday, after surging forward by 0.8% at the beginning of the week. On Tuesday, the Reserve Bank of Australia said that it would leave policy unchanged.