U.S Dollar’s Plunge Boosts Stock Markets and Emerged Market Currencies

The U.S dollar index value currency traders used in tracking the greenback’s strength against a basket of other major currencies (Euro, British pound sterling, Swiss Franc, Japanese Yen, Swedish Krona, Canadian dollar) plunged 0.22% to 90.142.

U.S dollar value has plummeted more than 6% this year alone. Global investors are going short on the U.S dollar on the account that the U.S. Federal Reserve maintains a dovish monetary policy and expectations of more quantitative easing programs for 2021 to aid the American fragile economy from COVID-19.

Still, many traders anticipate an expected further decline in the greenback will boost stock markets and emerging-market currencies.

For the Eurozone, all eyes on Brexit. With the British pound dragging on as we approach the 31st December deadline, optimism that the EU and the UK will secure a deal could see the pair spike to 1.40 levels and the euro could touch 1.25.

However, a no-deal outcome cannot be ruled out and the deep shock this could inflict on trade and business sentiment. Even if a Brexit deal were secured, there would still be trade disruption given new administrative burdens on firms exporting into the EU.

Uncertainty across all economies, combined with a new national lockdown across countries in January to counter the second wave and new strain of COVID, means choppy economic activity across the board in Q1 for all major/emerging currencies and will see investors taking solace in traditional safe-haven assets.

This could likely prompt federal banks across economies to further cut rates towards negative territory. Consequently, the world economic growth forecast may be revised downward to accommodate the looming shock on economies.