In forex markets, the dollar is revealing to be the main victim among the top currencies. In these days, the euro-dollar exchange rate has risen above 1,700, to the highest levels of the last 22 months, while the cable has risen above 1,2800, to the highest of the last 4 months. Not only. The weakness of the greenback led to a strong mass appreciation of cryptocurrencies, starting from bitcoin – which exceeded $ 11,000 on July 28 – and, above all, of gold, which on July 27 touched the new all-time high, at $ 1,945.10 an ounce, breaking the previous record hit in September 2011.
Sentiment towards the dollar therefore continues to be negative, and the appreciation of gold, the safe haven par excellence, is certainly the best sign of how much investors fear the weakness of the US currency. What is happening? The main reasons are to be found in the macroeconomic data trend and in the geopolitical crisis that is affecting relations between China and the United States. As soon as the pandemic crisis started, the euro-dollar exchange rate had remained substantially stable, trapped in the range 1.090 – 1.1000. The strong liquidity injections by the ECB and the Federal Reserve, which were supposed to cause large shifts did not move the exchange rate at all. It was evident that traders did not want to take specific positions in favor of one or the other currency, and that they were waiting to understand which of the two macro areas, the United States and the Eurozone, would have emerged better and earlier from the crisis.
The latest macro data provided the answer they expected. The PMI indicators, or proxies used to measure the sentiment of economic operators on the future trend of the economy, turned out better than expected in the eurozone, especially in Germany, and the labor market was more resilient than expected. The same thing did not happen in the USA, where the labor market has shown an unexpected weakness. The rise in the number of job seekers, which has reached levels never observed before in US history, accompanied by the awareness that the United States does not have a welfare system comparable with that of Europe, have suggested that United States will not have a rapid exit from the crisis. After observing the data, traders started selling dollars, also considering that the monetary policy stance of the ECB could turn towards a more hawkish direction, unlike that of the Fed which will remain extremely accommodating still long. The dollar therefore risks remaining the weakest currency for a long time.