Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

U.S. Goes For Worst-case Scenario For The Dollar

By FxPro Financial Services Ltd (Alexander Kuptsikevich)ForexJul 30, 2021 06:12AM ET
U.S. Goes For Worst-case Scenario For The Dollar
By FxPro Financial Services Ltd (Alexander Kuptsikevich)   |  Jul 30, 2021 06:12AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Asian markets are losing again on Friday and are on track for their worst monthly decline since last March. However, we do note a marked improvement in sentiment compared to the start of the week. Friday's 0.8% drop in Asian indices on the MSCI Asia Pacific is quite understandable due to the pull into the dollar and the pressure on risky assets later in the month and week, which could stretch into the end of the day.

Dollar's decline paused due to week/month end
Dollar's decline paused due to week/month end

At the same time, the news backdrop so far remains on the side of a weaker dollar. Macroeconomic data failed to surprise. The number of people receiving unemployment benefits in the USA stagnates again after the momentum of decline at the beginning of the second quarter. The number of initial claims over the last two weeks is again over 400K.
According to the provisional US GDP estimates for the second quarter, the economy was 0.5% above its pre-pandemic peak. However, the growth rate last quarter did not accelerate as economists on average expected. Announced growth was 6.5% compared to 6.3% the previous quarter.
US economy surpassed pre-pandemic level is
US economy surpassed pre-pandemic level is

The data generally indicates a relatively high economic growth rate. Still, the stagnating labour market is a cause for caution and does not pave the way for a normalisation of monetary policy. At the same time, GDP is recovering quite rapidly to its pre-crisis trajectory.

This appears like a worst-case scenario for the dollar as it would force the Fed to take a wait-and-see approach, turning a blind eye to high inflation and continuing to feed the economy with easy money. Part of this liquidity is going into the markets, causing a further rise in the prices of listed assets.
Unemployment claims number stagnating
Unemployment claims number stagnating

We should not forget the fundamental reason for the dollar's weakening: High inflation is eating away at its purchasing power. The two-year US bond now yields 0.2% in a situation with 5.4% inflation and price growth of 3.4% in 2021 and 2.1% in 2022.
Fundamentally, the dollar is only sustained by its reserve currency status and a high degree of uncertainty in a world where it isn't easy to find an alternative right now. Each region has its own set of doubts, from fears of stagnation in Europe to threats of market capitalism in China.

However, investors should remember that the British pound was once the main reserve currency, with its strength based on power in the colonies. But that did not stop the pound from declining in the middle of the century.

The UK of half a century ago and the US now have in common their reserve currency status and the high debt burden. A stagnant labour market will tie the hands of the Fed in normalising monetary policy.

The FxPro Analyst Team

U.S. Goes For Worst-case Scenario For The Dollar

Related Articles

Kathy Lien
Will Retail Sales Help Or Hurt USD? By Kathy Lien - Sep 15, 2021 15

The U.S. dollar extended lower against most of the major currencies on Wednesday despite a stronger Empire State manufacturing survey. According to this report, activity in the New...

Al Brooks
EUR/USD: Tight Trading Range By Al Brooks - Sep 15, 2021

Yesterday EUR/USD triggered a High 2 bull flag buy signal, but Monday had a bear body and it followed a bear bar on Friday. Also, the bear channel from the Sept. 3 high was tight....

Scott Barkley
GBP/USD Range Trade By Scott Barkley - Sep 15, 2021

BullishUSDX is headed up at the time of this post. Currently we are at 1.3819. We are looking for a continuation to the ATR (Average True Range) Target at 1.3740 area. We have a...

U.S. Goes For Worst-case Scenario For The Dollar

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email